Question

Q6. Which Of The Following Is A Demerit Of PBP Method?
A. Timing & Cost Of Capital Is Not Considered
B. Easy Method
C. No Assumption About Future Interest Rates
D. Suitable For Companies Undergoing Liquidity Constraints​

Answer 1

Answer:

The correct answer is B. Easy Method.

Explanation:

The payback period exists as a process generally operated by investors, financial experts, and corporations to compute investment returns. It assists determine how long it takes to retrieve the initial costs associated with an investment.

Demerits or Limitations of the Pay-Back Method are,

• It considers only the time of pay-back.
• It oversees capital cost.
• No rational basis for judgment:
• Timing & Cost Of Capital Is Not Considered.
• No Assumption About Future Interest Rates.
• Suitable For Companies Undergoing Liquidity Constraints​.

Hence, B. Easy Method is not a disadvantage of the PBP Method.

Answer 2

Answer:

B. Easy Method

Explanation:

Easy Method

is A Demerit Of PBP Method.

PBP means Pay back Period.

Pay-back method totally ignores the annual cash inflow after the pay-back period. (b) It considers only the period of pay-back: Pay-back method does not consider the pattern of cash inflows or the magnitude and timing of cash inflows.

Pay Back Period(PBP)

1. In the calculation of pay back period, time value of money is not recognized.

2. Pay back period gives high emphasis on liquidity and ignores profitability.

The project code is #SPJ3