Master the Discounted Payback Period
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Questions and Answers

Which of the following best describes the discounted payback period?

  • The discount rate applied to future cash flows
  • The time required to recover the initial cash outlay of a project (correct)
  • The total present value of future cash flows
  • The cumulative cash flow in the year before recovery

    • What is the formula for calculating the discounted payback period?

  • Discounted Payback Period = Year Before the Discounted Payback Period Occurs - Cumulative Cash Flow in Year Before Recovery
  • Discounted Payback Period = Year Before the Discounted Payback Period Occurs + (Cumulative Cash Flow in Year Before Recovery / Discounted Cash Flow in Year After Recovery) (correct)
  • Discounted Payback Period = Year Before the Discounted Payback Period Occurs + Cumulative Cash Flow in Year Before Recovery
  • Discounted Payback Period = Year Before the Discounted Payback Period Occurs - (Cumulative Cash Flow in Year Before Recovery / Discounted Cash Flow in Year After Recovery)

    • When should a project be accepted according to the discounted payback period?

  • If the project cost is lower than the specified time
  • If the project cost is higher than the specified time
  • If the project cost will be recovered in the specified time (correct)
  • If the project cost will not be recovered in the specified time

    • What is the main purpose of the discounted payback period?

    <p>To determine the profitability of a project</p> Signup and view all the answers

    Which of the following is NOT included in the formula for calculating the discounted payback period?

    <p>Discount Rate</p> Signup and view all the answers

    What does the benefit-cost ratio measure?

    <p>The present value of benefit divided by the present value of cost</p> Signup and view all the answers

    Which formula is used to calculate the benefit-cost ratio?

    <p>$B/C = rac{i(1 + i)^n}{(1 + i)^n - 1}$</p> Signup and view all the answers

    What does it mean if the benefit-cost ratio is greater than or equal to 1.0?

    <p>The project is economically justified</p> Signup and view all the answers

    What does it mean if the benefit-cost ratio is less than 1.0?

    <p>The project is not economically acceptable</p> Signup and view all the answers

    What is the purpose of the benefit-cost ratio?

    <p>To determine the viability and value that may be generated from an investment or project</p> Signup and view all the answers

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