Question

Which one of these statements related to discounted payback is correct?a) the discounted payback period decreases as teh discount rate increasesb) discounted payback is biased towards long-term projectsc) discounted payback is used more frequently in business than paybackd) discounted payback does not require a cutoff pointe) payback is a better method of analysis than discounted payback

Answer 1

Answer:

A) the discounted payback period decreases as the discount rate increases

Explanation:

The discounted payback period is used to determine the profitability of an investment project.

A not discounted payback period is how long does it take for the cash flows of a project to recoup the investment's cost without considering the value of money in time. By applying a discount to the cash flows, the discounted period will more accurately measure the length of time needed to recoup an investment using current dollars.

The higher the discount rate, the longer it will take for the cash flows to cover the investment's cost, so if the discount rate lowers, then the discounted payback period will be shorter.