From a finance perspective, discounted payback is considered to be a superior method of analysis as compared to payback. Why then, is discounted payback used less frequently than payback?
A) Discounted payback applies only to long-term projects.
B) Discounted payback is more difficult to compute and explain.
C) Discounted payback is based on net income rather than cash flows.
D) Discounted payback requires knowledge of a project's internal rate of return.
E) Discounted payback is liquidity biased where payback is not.

Question

Quizplus · Accepted Answer

Discounted payback is more complex to calculate and understand because it involves discounting future cash flows to their present value, which requires additional computations and a deeper understanding of financial concepts compared to the simpler, straightforward calculation of the traditional payback period.

From a Finance Perspective, Discounted Payback Is Considered to Be