Under the payback method of analysis:
A) The initial cash outlay is ignored.
B) The cash flow in year 3 is ignored if the required payback period is 4 years.
C) A project's initial cost is discounted.
D) The cash flow in year 2 is valued just as highly as the cash flow in year 1 as long as the required payback period is 3 years or more.
E) A project will be acceptable whenever the payback period exceeds the pre-specified number of years.

Question

Quizplus · Accepted Answer

The payback method of analysis does not discount future cash flows, meaning all cash flows within the payback period are valued equally regardless of when they occur. This method simply calculates how long it takes for the initial investment to be recovered through the project's cash inflows.

Under the Payback Method of Analysis