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diamong [38]
2 years ago
6

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

Business
2 answers:
Airida [17]2 years ago
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]2 years 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.

Learn more about payback here brainly.com/question/14316388

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3 years ago
For america, the ________ was a great failure of foreign intelligence, a great tactical military success, and a great political
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3 years ago
The balance sheet category "Intangible Assets" includes:
AnnyKZ [126]

Answer:

b. patents, trademarks, and franchises. 

Explanation:

Intangible assets are assets that aren't physical, they cannot be seen.

Examples of intangible assets are goodwill, patents, trademarks, and franchises. 

8 0
3 years ago
arter Company sells merchandise on account for $4,000 to Hannah Company with credit terms of 2/10, n/30. Hannah Company returns
timama [110]

Answer:

The answers are:

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Explanation:

The credit terms of 2/10, n/30 means that if Hannah Company pays within ten days, they will get a 2% discount, or they have thirty days to pay the full receipt.

Hannah's check should be for:

($4,000 - $600) x 0.98% = $3,400 x 0.98% = $3,332  

Arter Company should record the following entries:

Cr Accounts receivable $4,000

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6 0
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  • Receiving five cents for recycling glass bottles
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Recycling is good for the environment and also means companies spending less because they wouldn't have to reproduce the recycle material from scratch. Paying a person money for recycling the glass bottles is an incentive that is meant to encourage them to do it more.

Not all incentives are positive however. Some are negative and aimed at reducing a behavior. Fining people for illegal parking is an example as the logic is that the offending party will think of the fines the next time they want to park illegally and refrain from it.

Offering tax breaks to a person in order to get them to save is an incentive because they are being offered to keep more of their money if they save more.

4 0
3 years ago
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