Consider the following statements about the payback period:
I. As shown in your text, the payback period considers the time value of money.
II. The payback period can only be used if net cash inflows are uniform throughout a project's life.
III. The payback period ignores cash inflows that occur after the payback period is reached.
Which of the above statements is (are) correct?

Question

Quizplus · Accepted Answer

The payback period does not consider the time value of money, making statement I incorrect. It can be used even if net cash inflows vary, making statement II incorrect. Statement III is correct because the payback period focuses solely on the time it takes to recover the initial investment, ignoring any benefits that occur after this point.

Consider the Following Statements About the Payback Period