Which one of the following statements is correct concerning the payback period?
A) An investment is acceptable if its calculated payback period is less than some pre- speciﬁed period of time.
B) An investment should be accepted if the payback is positive and rejected if it is negative.
C) An investment should be rejected if the payback is positive and accepted if it is negative.
D) An investment is acceptable if its calculated payback period is greater than some pre- speciﬁed period of time.
E) An investment should be accepted any time the payback period is less than the discounted payback period, given a positive discount rate.

Question

Quizplus · Accepted Answer

The correct statement concerning the payback period is option A. The payback period is the amount of time that it takes for an investment to generate enough cash flows to recover its initial cost. An investment is acceptable if its payback period is less than a pre-specified time period. This pre-specified time period is typically determined by the company's management, and it is often referred to as the cut-off period. Therefore, option A is the correct statement.

Which One of the Following Statements Is Correct Concerning the Payback