- CFA Exams
- CFA Exam: Level I 2021
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 3. Investment Decision Criteria
CFA Practice Question
An advantage of the payback period rule is that it ______
II. discounts cash flows.
III. is simple to use.
I. adjusts for uncertainty of early cash flows.
II. discounts cash flows.
III. is simple to use.
Correct Answer: III only
User Contributed Comments 2
| User | Comment |
|---|---|
| loisliu88 | why is l not right? it tells us how long the initial investment will be tied up in the project, therefore indicates project's risk and a hint of liquidity. |
| Bududeen | uncertainty implies risk... the nominal cash flows when not discounted by the cost of capital have not been adjusted for risk and uncertainty..hence, I is not correct |