Which of the following statements best describes payback?
A) The regular payback method recognizes all cash flows over a project's life.
B) The discounted payback method recognizes all cash flows over a project's life, and it also adjusts these cash flows to account for the time value of money.
C) The regular payback method was widely used years ago, but virtually no companies even calculate the payback today.
D) The regular payback is useful as an indicator of a project's liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project.

Question

Quizplus · Accepted Answer

Payback is a method of analyzing the time it takes for a project to recover its initial investment. The regular payback method only considers the total amount of time it takes to recover the initial investment, while the discounted payback method adjusts for the time value of money. However, the regular payback method can still be useful for managers as an indicator of a project's liquidity, or how quickly the funds invested in a project can be recovered. While the regular payback method may not be as commonly used today, it still has value in certain situations.

Which of the Following Statements Best Describes Payback