Consider the following pairs of estimating method and what it does:
Lang factor - Scales equipment cost to total fixed capital
Six-tenths rule - Scales a plant cost to a different capacity
Breakeven analysis - Finds the output where revenue meets cost
Payback period - Accounts for the time value of money
How many of the pairs given above are correctly matched?
Answer: C
Correct answer: Only three
Three are correctly described. The fourth is not: payback ignores the time value of money entirely - it simply counts undiscounted cash until the outlay is recovered. That, with its blindness to everything after the payback point, is why it is a screening measure rather than a decision rule.
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