A. The net present value method does not measure the number of years required for the after-tax cash flows to recover the initial investment in a project. The net present value method is a discounted cash flow method which calculates the value of a project by discounting the after-tax expected cash flows for the project over its life to time period zero using the company's minimum required rate of return. The present value of the future expected cash inflows minus the net initial investment equals the net present value.

B. The profitability index does not measure the number of years required for the after-tax cash flows to recover the initial investment in a project. The profitability index is a ratio of the present value of the net future cash flows to the amount of the initial investment. If a project has a positive net present value, the profitability index will be above 1.00. If it has a negative net present value, it will have a profitability index of less than 1.00.

C. The accounting rate of return does not measure the number of years required for the after-tax cash flows to recover the initial investment in a project. The accounting rate of return is a ratio of the increase in expected annual average after tax accounting net income to the net initial investment. This method uses accrual accounting income, so depreciation is included in the expenses. In addition, it does not take into account the time value of money.

D. The Payback Method is used to determine the number of periods that must pass before the net after-tax cash inflows from the investment will equal (or "pay back") the initial investment cost. If the expected cash inflows are constant over the life of the project, the payback period is the net initial investment divided by the periodic expected cash flow. If the expected cash inflows are not constant over the life of the project, the cash inflows are added to determine on a cumulative basis when the inflows will equal the outflows. The payback method ignores all cash flows beyond the payback period, does not include the time value of money, and does not include any factor for the cost of capital. However, it is widely used because it is simple and it can be useful when a project is judged to be very risky with uncertain cash flows in the later years. In this case, it may be used to determine how quickly the investment will be recouped so that if necessary, the company can abandon the project without too great a loss.