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, prompting the user to consider different scenarios about the relationship between these financial concepts.
Answer
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
Higher discount rates reduce the present value of future cash flows, leading to a shorter time to recover the investment.
Tips
A common mistake is forgetting that the discounted payback period accounts for the time value of money, unlike the regular payback period.
Sources
- Discounted Payback Period - investopedia.com
- The Impact of Discount Rate on Payback Period Analysis - fastercapital.com
AI-generated content may contain errors. Please verify critical information
