Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Which of the following methods does NOT consider the investment's profitability?

Net present value (NPV) method

Profitability index method

Internal rate of return (IRR) method

Payback period method

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Verified step by step guidance

Understand the concept of the Payback Period method: The Payback Period method calculates the time required to recover the initial investment from the cash inflows generated by the investment. It focuses solely on the time aspect and does not consider the profitability or the time value of money.

Compare the Payback Period method with other methods: The Net Present Value (NPV), Profitability Index, and Internal Rate of Return (IRR) methods all incorporate profitability and the time value of money in their calculations, making them more comprehensive in evaluating investments.

Recognize the limitation of the Payback Period method: Since the Payback Period method does not account for cash flows beyond the payback period or the time value of money, it does not provide a measure of the investment's overall profitability.

Identify why the Payback Period method is the correct answer: Among the listed methods, only the Payback Period method disregards profitability, making it distinct from the other methods that evaluate the financial viability of an investment.

Conclude the reasoning: The Payback Period method is focused on recovering the initial investment quickly, but it does not assess whether the investment is profitable in the long term, which is why it does not consider profitability.