Answer (D) is correct . The payback period equals the net investment divided by the average expected cash flow, resulting in the number of years required to recover the original investment. The bailout payback incorporates the salvage value of the asset into the calculation. It determines the length of the payback period when the periodic cash inflows are combined with the salvage value. Hence, the method measures risk. The longer the payback period, the more risky the investment.
Answer (A) is incorrect because The bailout payback method does not consider the time value of money.
Answer (B) is incorrect because The bailout payback includes salvage value as well as cash flow from operations.
Answer (C) is incorrect because The bailout payback incorporates the disposal value in the payback calculation.
|
