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1 year ago

What is the major limitation of using the payback period as a tool in capital budgeting?

2 answers:

7 0

The major limitation of using the payback period as a tool in capital budgeting is <u>it ignores the time value of money</u>.

Capital budgeting is a technique of estimating the ﬁnancial viability of capital investment over the existence of the funding. unlike some different forms of investment evaluation, capital budgeting makes a specialty of coins ﬂows rather than seasonedﬁts.

Capital budgeting is vital as it creates accountability and measurability. Any enterprise that seeks to make investments in its assets in a challenge without expertise in the dangers and returns worried would be held irresponsible by way of its owners or shareholders.

Capital Budgeting more often than not refers to the choice-making technique related to investment in long-time period tasks, an instance of which incorporates the capital budgeting system performed by way of an agency to determine whether or not to keep with the prevailing machinery or buy a brand new one in the vicinity of the vintage machinery.

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hoa [83]1 year ago

4 0

The major limitation of using the payback period as a tool in capital budgeting is that it ignores the time value of money.

The payback period technique does not account for the time fee of money idea and it's far directly thinking about the fee of cash inflows so it'll now not be presenting with the accurate estimation of while the capital is lower back to the shareholders and it's far the least correct approach due to the fact the opposite method like discounted payback period or internal rate of going back are imparting with a higher estimation due to the fact they cut price for the time value of money.

As payback does now not remember the time cost of money, it considers all cash inflows to be equal in fee irrespective of the time when it occurs. It could offer erroneous results, as the cash obtained a yr later than the given one (present) is much less in price, if we practice the idea of time cost of money.

The term payback period refers to the amount of time it takes to get better the cost of funding. In reality put, it's miles the duration of time and funding reaches a breakeven point. Human beings and businesses mainly make investments in their cash to get paid lower back, that's why the payback duration is so critical.

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The facet of partnership that describes the requirement that every worker be responsible for defining the project's vision and g

mihalych1998 [28]

Answer:

Exchange of purpose

Explanation:

The facet of partnership that describes the requirement that every worker be responsible for defining the project's vision and goals is called Exchange of purpose

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3 years ago

Porches, Inc. sells lawn furniture. Selected financial information for the most recent year is as follows:Beginning merchandise

Hatshy [7]

Answer:

The operating income for the year is $97,000

Explanation:

For computing the operating income, first, we have to calculate the cost of goods sold. The formula to compute the cost of good sold is shown below:

= Beginning merchandise inventory + Purchases during the year - Ending merchandise inventory

= $33,200 + $92,000 - $35,000

= $90,200

Now, the operating income would be

= Sales - the cost of good sold - selling and administrative expenses

= $262,900 - $90,200 - $75,700

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3 years ago

Which of the following refers to the costs of production that fluctuate depending on the number of units produced? A. Total cos

Natalka [10]

Variable cost refers to the costs of production that fluctuate depending on the number of units produced.

<h3><u>Explanation:</u></h3>

The cost of any product that changes based on the quantity of goods that are produced. The volume that is produced decides the fluctuations in the variable cost. Fixed cost is the cost that will not change based on the number of units of the goods that is produced. Rent of a building can be considered as a fixed cost.

Example for variable cost may be raw materials cost, packaging cost,etc. Variable cost can be calculated by adding up the cost of labor and raw materials that are used in the production of one unit of a good. The total variable cost can be calculated by multiplying variable cost per unit with the number of units produced.

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2 years ago

Perfect elasticity and zero elasticity refer to the same event, which occurs when quantity demanded or quantity supplied change

larisa86 [58]

Answer:

Explanation:

perfectly elasticity is when at an existing price quantity demanded can increase or decrease.the numerical co efficient is always infinity ♾️

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2 years ago

According to the quantity theory:

lana [24]

Answer:

B) Inflation is everywhere and always a monetary phenomenon.

Explanation:

Henry Thornton developed this theory in 1802. According to the Quantity Theory, In an economy, there is a direct relationship between the quantity of money in the economy and the prices of goods and services. The price levels are directly related to the amount of money in circulation, which is the cause of inflation. Hence the consumer has to pay more for the same amount of commodity.

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2 years ago