Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.
A. One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money.
B. If a project's payback is positive, then the project should be rejected because it must have a negative NPV.
C. The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.
D. If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long-lived projects, and this will cause its risk to increase over time.
E. The longer a project's payback period, the more desirable the project is normally considered to be by this criterion.
Answer: A
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