Question

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

a) True
b) False

Answer 1

The answer is true.

Step-by-step explanation:

Both of payback period and Accounting Rate of Return do not consider the time value of money. And this is one of the big disadvantages in using these methods as a means of valuating capital project.

While payback period is the length of time it takes a firm to recover the cost of an investment, accounting rate of return is annual return(profit) on investment.

Payback period is only interested in when it will get its Investment back. It ignores the value or time after this investment has been realized.