If a project has a payback period of 5 years and a cost of capital of 10%,then the discounted payback will:
A) exceed 5 years.
B) be less than 5 years.
C) decrease if the cost of capital increases.
D) decrease if the payback period increases due to revised cash flows.

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes to recover the initial investment in today's dollars, taking into account the time value of money. Since the cost of capital is 10%, the discounted payback period will be longer than the regular payback period of 5 years. Therefore, the best choice is A, which states that the discounted payback period will exceed 5 years.

If a Project Has a Payback Period of 5 Years