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diamong [38]
1 year ago
6

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

Business
2 answers:
Airida [17]1 year 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]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 benefit enjoyed by a third party that is not directly involved in the production or consumption of a good or service is?
mrs_skeptik [129]

An externality is the benefit enjoyed by a third party that is not directly involved in the production or consumption of a good or service.

Externalities can either be positive or negative;

Positive externalities occur when there is a positive gain on both the private level and social level.

Negative externalities occur when the social costs outweigh the private costs. For example in cases of pollution where an industry may  decide to cut costs and increase profits by implementing new operations that are more harmful to the environment.

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6 0
1 year ago
Please select the word from the list that best fits the definition
irakobra [83]

Answer:

The answer is Roth IRA

Explanation:

Definition: an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

7 0
3 years ago
Read 2 more answers
Difference between authority and responsibility​
Orlov [11]

Answer:

An authority is a power to give orders and ask your subordinates to perform certain duties. Authority can be given to a person by government’s executives, owner of an organization, or by the representatives of GOD.

An authority is a legitimate power to influence people to compel them to perform the task given to them. For example, a mob has the power to punish a criminal, but they don’t have legitimate authority to punish the criminal.

The authority lies in the hands of the law. Similarly, in an organization, the authority lies in the hands of a manager to get organizational tasks accomplished by his subordinates.

However, the authority of the manager is limited to a particular department of the organization. He has no authority on his employees outside the organization.

Authority is the consequence of the position of an individual in an organization. A person can only be at the superior position of the organization if he has authority; a person with no authority can never be on the top position of an organization.

Therefore, the degree of authority is highest at the top level, and its degree keeps on decreasing the levels of the organization. That means only a person at the top level can give orders to the people at a low level and can compel them to perform tasks given to them, and a person at lower level can’t give orders to the people at the top or his peers.

Authority can be of two types such as official authority (where authority is given to a person by the organization he works for), and other is a personal authority (where authority is given to a person because of his ability to influence people in the organization.

What is the Responsibility?

Being responsible

Responsibility is a moral duty or an obligation of an employee, whether he is a manager or subordinate to fulfill the task given to them. The responsibility starts as soon as the job is assigned to the employee and finish with the completion of the task.

The person is responsible for the consequence of his performance in the task. The responsibility comes with authority.

A manager is responsible for the accomplishment of the task. The responsibility moves upwards in the organization from a lower level of employees to the upper level of management.

The responsibility is originated from the superior-subordinate relationship in an organization. Because of this relationship, the manager can do a task from his subordinates with responsibility.

Difference between authority and responsibility

Difference between authority and responsibility

AUTHORITY RESPONSIBILITY

An authority is a power or right that a person gets because of his designation, role, or job. A responsibility is an obligation that an employee has to fulfill the work bestowed on him

An authority is the outcome of a formal position in an organization. A responsibility is the outcome of a superior-subordinate relationship.

An authority is a legal right given to a person. A responsibility is consequence of authority.

It is a delegation of authority. It is an assumption of responsibility.

The flow of authority is from the upper level to lower level. The flow of authority is from lower level to upper level.

Authority requires the ability to give orders. Responsibility requires the ability to follow orders.

The authority lasts for a long period of time. The responsibility ends as soon as the work bestowed on the employee is complete.

The objective of the authority is to make decisions and implement them effectively. The objective of responsibility is to perform duties effectively assigned by the superiors.

5 0
3 years ago
Blue Water Boats is considering a new project with perpetual revenue of $435,000, cash costs of $310,000, and a tax rate of 21 p
djyliett [7]

Answer:

Net Present Value: 1,661,452,09

Explanation:

The net present value is the presetn value of the revenues less the cost from the company:

revenue:                435,000

interest expense:

250,000 x .073 = <u>   (18,250)  </u>

net income:           416,750‬

<u>after tax:</u>  416,750 x (1 - 21%) = 329,232.5‬

<u>present value</u> of the project (per perpetuity)

329,252.5 / 0.167 = 1,971,452.09

less the cash cost:   (310,000)

Net Present Value: 1,661,452,09

4 0
3 years ago
An employee is able to receive health insurance from a former employer after changing jobs. What best describes the legislation
Firdavs [7]

Answer:

Health Insurance Portability and Accountability Act (HIPAA).

Explanation:

An employee is able to receive health insurance from a former employer after changing jobs because of the Health Insurance Portability and Accountability Act (HIPAA).

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 was a bill enacted by the 104th U.S Congress and was signed in 1996 by President Bill Clinton. It is a federal law that protects sensitive patient health information from being disclosed without their knowledge, approval or consent and payment of health care insurance for employees.

7 0
3 years ago
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