Question

Why do managers suggest that ignoring all cash flows following the assigned payback period is not a major flaw of the payback method of capital budgeting analysis? Payback is never used in real practice so it makes no difference how academics apply the method in their studies If the cash flows after the required payback period are significant, managers will use their discretion to override the payback rule. All cash flows after the first two years are highly inaccurate so including them lessens the reliability of the resulting decision. All cash flows after the assigned payback period are relatively worthless in today’s dollars so ignoring them has no consequence. The results of including the cash flows after the required payback period rarely have any effect on the accept/reject decision.v

Answer 1

The answer is "choice B".

Step-by-step explanation:

Please find the numbering of the question in the attachment file.

Whenever the cash flows become substantial after the required period, managers would use their option to surpass the pay-back rule, as well as the managers, recommend that ignoring all investment returns after a period of pay-back would not be an important component in the capital-budget evaluation repayment process, that's why the choice "B" is correct.