Discussion
Assertion: simple payback is an inadequate criterion on its own. Reason: it ignores both the project's life and the time value of money.
Answer: C
Correct answer: both the assertion and the reason are true and the reason explains the assertion
Both are true and the reason gives the mechanism. Payback counts only until the capital is recovered, so it is blind to the project’s remaining life, and it treats a rupee in year three as equal to one today. Those two omissions are exactly why it is used as a screen and backed by a discounted measure before a decision is taken.
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