Evaluate the impact of discount rate changes on the discounted payback period.
Understand the Problem
The question is asking to evaluate how changes in the discount rate affect the discounted payback period, providing multiple choice answers related to the impact of increasing or decreasing the discount rate.
Answer
A. An increase in the discount rate decreases the discounted payback period.
The final answer is A. An increase in the discount rate decreases the discounted payback period.
Answer for screen readers
The final answer is A. An increase in the discount rate decreases the discounted payback period.
More Information
A higher discount rate decreases the present value of future cash inflows, resulting in a shorter period required to recover the initial investment when using discounted cash flows.
Tips
A common mistake is not accounting for the time value of money when evaluating future cash flows.
Sources
- The Impact of Discount Rate on Payback Period Analysis - fastercapital.com
- Discounted Payback Period: What It Is and How to Calculate It - investopedia.com
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