Question

The main advantage of the payback rule is that it

a. adjusts for uncertainty of early cash flows.
b. is simple to use.
c. does not discount cash flows
d. .better accounts for salvage costs at the end of a project.

Answer 1

The primary advantage of the payback rule is its simplicity. It determines the time needed to recuperate the cost of an investment without considering the time value of money, unlike present discounted value methods.

Step-by-step explanation:

The main advantage of the payback rule is that it is simple to use. The payback rule simply calculates how long it will take for an investment to generate cash flows sufficient to recover the initial investment cost. Present discounted value, a different analytical tool which is widely used outside of finance, would involve discounting future cash flows to their present value. This concept is used in various contexts such as business capital investment decisions, governmental policy proposals, and environmental policy debates. Unlike the payback rule, present discounted value takes into account the time value of money.