Question

Which capital investment evaluation technique is described by the following characteristics? (1) Easy to understand and communicate (2) May result in multiple answers; (3) May lead to incorrect decisions when applied to mutually exclusive investments. Multiple Choice

A)Payback period
B)Discounted payback.
C)AAR
D)IRR
E)NPV

Answer 1

The capital investment evaluation technique described is the Payback period (A). It is easy to understand and communicate, may result in multiple answers, and may lead to incorrect decisions when applied to mutually exclusive investments.

Step-by-step explanation:

The capital investment evaluation technique that is described by the given characteristics is Payback period (A).

1. Easy to understand and communicate: The payback period is a straightforward method that considers the time it takes to recover an investment's initial cost through savings. It is easy to explain and comprehend.
2. May result in multiple answers: Different investments may have different payback periods, leading to multiple answers for comparison.
3. May lead to incorrect decisions when applied to mutually exclusive investments: When choosing between mutually exclusive investments (where only one can be undertaken), the payback period may not accurately reflect the investment's profitability or long-term value.