Asked by
Juan Diego Quecano Hernandez
on Oct 10, 2024
Verified
When a company is cash poor, a project with a short payback period but a low rate of return may be preferred to a project with a long payback period and a high rate of return.
Payback Period
The time required for an investment to generate cash flows sufficient to recoup the initial investment cost.
Rate of Return
A measure of the profit or loss on an investment over a specific period, expressed as a percentage of the investment's initial cost.
- Acquire knowledge about the payback period approach and identify its drawbacks in the context of investment decision-making.
- Develop an understanding of the contrasting aspects of preference versus screening decisions in the realm of capital budgeting.
Verified Answer
AM
Learning Objectives
- Acquire knowledge about the payback period approach and identify its drawbacks in the context of investment decision-making.
- Develop an understanding of the contrasting aspects of preference versus screening decisions in the realm of capital budgeting.