Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?

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Practice :

a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important?

b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?

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