The discounted payback method
A)discounts a project's initial cost.
B)is simpler and more reliable than the payback period.
C)is as reliable as NPV because both methods use discounted cash flo.
D)uses an arbitrary cutoff period.
E)ignores a project's initial costs.

Question

Quizplus · Accepted Answer

The discounted payback method uses an arbitrary cutoff period, which makes it less reliable than other methods such as NPV or IRR that take into consideration the time value of money and the project's cash flow over its entire life. While it does take into account discounted cash flows, it still ignores the project's initial costs, limiting its usefulness for decision-making purposes. Therefore, it is best to use the discounted payback method as a supplement to other methods to determine the feasibility of a project.

The Discounted Payback Method