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 difficult to compute and explain, thus making it less popular among analysts and managers. Although it is considered a superior method from a finance perspective, its complexity may deter some from using it.

From a ﬁNance Perspective, Discounted Payback Is Considered to Be