The discounted payback period of a project will decrease whenever the:
A) discount rate applied to the project is increased.
B) initial cash outlay of the project is increased.
C) time period of the project is increased.
D) amount of each project cash inflow is increased.
E) costs of the fixed assets utilized in the project increasE.

Question

Quizplus · Accepted Answer

The discounted payback period measures the time it takes for the project to recoup its initial investment in present value terms. It takes into account the time value of money by discounting the cash inflows to their present value. Therefore, if the amount of each project cash inflow is increased, the project will generate more cash flows in the same period of time, which will reduce the discounted payback period. None of the other factors (increase in discount rate, initial cash outlay, time period of the project, or costs of fixed assets) will have a positive impact on the discounted payback period.

The Discounted Payback Period of a Project Will Decrease Whenever