Question

Which of the three limitations of the Payback Rule can be overcome with a modification to it? Gives equal weight to all cash flows arriving before the cutoff period Does not consider cash flows after the payback period Biases the firm against long-term projects in favor of short-term ones

Answer 1

Gives equal weight to all cash flows arriving before the cutoff period

Step-by-step explanation:

The discounted payback gives equal weight to all cash flows arriving before the cut off period because it takes into account the time value of money by discounting the cashflows.

The discounted payback period is a capital budgeting method used to determine the level of profitability of a project by discounting its cashflows in order to get their present values.

The discounted payback period gives the actual number of years it takes to return the initial capital outlay, by discounting future cash flows and recognizing the time value of money.

Answer 2

Gives equal weight to all cash flows arriving before the cutoff

Step-by-step explanation:

The payback period measures how long it takes for the amount invested in a project to be recovered from a project.

A project with a shorter pay back period is favoured over projects with longer payback periods.

The payback period gives equal weights to all cash flows before arriving at a cut Off. The discounted payback period remedies this by discounting cash flows.

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