The discounted payback period takes the time value of money into account in that it uses...

Question:

The discounted payback period takes the time value of money into account in that it uses discounted free cash flows rather than actual undiscounted free cash flows in calculating the payback period.

True

False

Payback Analysis:

The payback analysis method is one of the several capital budgeting techniques used for assessing all the available projects and choose the one which is the most profitable to the firm. The other capital budgeting techniques which may also be used are net present value method, accounting rate of return method.

Answer and Explanation:

The correct answer to the given question is True.

The discounted payback period ascertains the value of the time period over which the initial investment in a project gets recouped by means of expected cash flows after taking into account the time value of money with an appropriate cost of equity. On the other hand, the payback period method does not take into account the time value of money for expected cash flows.


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Payback Analysis: Formula & Example

from Introduction to Management: Help and Review

Chapter 16 / Lesson 12
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