A project has a required payback period of three years.Which one of the following statements is correct concerning the payback analysis of this project? A)The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted. B)The cash flow in year three is ignored. C)The project's cash flow in year three is discounted by a factor of (1 + R)³. D)The cash flow in year two is valued just as highly as the cash flow in year one. E)The project is acceptable whenever the payback period exceeds three years.

Question

Quizplus · Accepted Answer

The payback period analysis does not discount future cash flows, meaning all cash flows within the payback period are valued equally regardless of when they occur. Therefore, cash flow in year two is valued just as highly as in year one.

A Project Has a Required Payback Period of Three Years