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      Question

      Which of the following statements about Payback Period

      and NPV in project appraisal is most accurate?
      A Both consider time value of money Correct Answer Incorrect Answer
      B Payback period is superior to NPV Correct Answer Incorrect Answer
      C Payback period ignores cash flows after cutoff period Correct Answer Incorrect Answer
      D NPV cannot compare projects with unequal life Correct Answer Incorrect Answer
      E NPV ignores discounting Correct Answer Incorrect Answer

      Solution

      Payback is simple but ignores all returns after payback. NPV considers entire project life and time value. Hence, Payback is less reliable for profitability analysis.

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