$$\text { Reference: 10-01 }$$ Shields Company Has Gathered the Following Data on a Proposed

$$\text { Reference: 10-01 }$$ Shields Company has gathered the following data on a proposed investment project: $$\begin{array} { | l | l | } \hline \text { Investment required in equipment } & \$ 400,000 \\\hline \text { Annual cash inflows } & \$ 80,000 \\\hline \text { Salvage value } & \$ \quad 0 \\\hline \text { Life of the investment } & 10 \text { years } \\\hline \text { Discount rate } & 10 \% \\\hline\end{array}$$
-Which one of the following statements about the payback method of capital budgeting i? correct?

A) The payback method considers cash flows after the payback has been reached.
B) The payback method uses discounted cash flow techniques.
C) The payback method does not consider the time value of money.
D) The payback method will lead to the same decision as other methods of capital budgeting.

Correct Answer:

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