Which of the following is a correct statement about the traditional payback period (PB) method that is used to evaluate capital budgeting projects?
A. To compute a project's PB, simply add up the expected cash flows for each year until the cumulative value equals the amount that is initially invested.
B. To compute a project's PB, simply add up the discounted cash flows for each year until the cumulative value equals the amount that is initially invested.
C. The PB gives a direct measure of the dollar change in the firm's value if the project is purchased.
D. The PB considers the time value of money.
E. The PB does not provide information about the risk associated with the recapture of the original amount invested in a project.
Answer: A
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