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Questions and Answers
Which of the following best describes the payback period?
Which of the following best describes the payback period?
- The time it takes for a project to generate positive cash flows
- The time it takes for a project to break even in cash collections using discounted dollars
- The time it takes for a project to break even in cash collections using nominal dollars (correct)
- The time it takes for a project to generate negative cash flows
What does the discounted payback period take into account that the payback period does not?
What does the discounted payback period take into account that the payback period does not?
- Neither the timing of cash flows nor the prevailing rate of return in the market
- The timing of cash flows and the prevailing rate of return in the market (correct)
- The prevailing rate of return in the market only
- The timing of cash flows only
Why may the payback period and the discounted payback period not return the same result?
Why may the payback period and the discounted payback period not return the same result?
- Due to the discounting of cash flows (correct)
- Due to the prevailing rate of return in the market
- Due to the timing of cash flows
- Due to the compound interest
Which figure may the payback period return, while the discounted payback period returns a negative figure?
Which figure may the payback period return, while the discounted payback period returns a negative figure?
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What is the main difference between the payback period and the discounted payback period?
What is the main difference between the payback period and the discounted payback period?
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