A project has a payback period of five years and the firm employs a 10 percent cost of capital.Which of the following statements is correct concerning this Project's discounted payback?
A)Discounted payback will exceed five years
B)Discounted payback will be less than five years
C)Discounted payback will decrease if the Project's IRR exceeds 10 percent
D)Discounted payback will increase if the Project's IRR is less than 10 percent

Question

Quizplus · Accepted Answer

Discounted payback period is longer than regular payback period because it takes into account the time value of money. In this case, since the cost of capital is 10%, the discounted payback period will be longer than five years. Therefore, option A is the correct choice. Option B is incorrect because discounted payback period is always greater than or equal to regular payback period. Option C is incorrect because the IRR does not affect the discounted payback period. Option D is also incorrect for the same reason as option C.

A Project Has a Payback Period of Five Years and the Firm