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

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

Which of the following is a weakness of the payback method in capital budgeting?

It considers all cash flows over the project's entire life.

It ignores the time value of money.

It provides a measure of profitability based on net present value.

It requires complex calculations involving discount rates.

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Verified step by step guidance

Understand the payback method: The payback method in capital budgeting calculates the time required to recover the initial investment from the cash inflows generated by the project. It is a simple and widely used method for evaluating investment projects.

Identify the key weakness: The payback method does not account for the time value of money, which is a fundamental concept in finance. The time value of money states that a dollar received today is worth more than a dollar received in the future due to its earning potential.

Analyze the options: Review each option provided in the question to determine which one correctly identifies a weakness of the payback method.

Eliminate incorrect options: For example, the payback method does not consider all cash flows over the project's entire life, as it focuses only on the period required to recover the initial investment. Additionally, it does not provide a measure of profitability based on net present value (NPV), nor does it require complex calculations involving discount rates.

Select the correct answer: The correct weakness of the payback method is that it ignores the time value of money, which makes it less accurate compared to methods like NPV or internal rate of return (IRR).