Which of the following statements is true of payback period?
A) If the payback period is less than the maximum acceptable payback period, management should be indifferent.
B) If the payback period is greater than the maximum acceptable payback period, accept the project.
C) If the payback period is less than the maximum acceptable payback period, accept the project.
D) If the payback period is greater than the maximum acceptable payback period, management should be indifferent.

Question

Quizplus · Accepted Answer

If the payback period is less than the maximum acceptable payback period, the project should be accepted as it indicates that the project will generate enough cash flows to recover the initial investment in the prescribed time frame. Option A is incorrect as management should be concerned if the payback period is greater than the maximum acceptable payback period. Option B is incorrect as the project should not be accepted if the payback period is greater than the maximum acceptable payback period. Option D is incorrect as management should not be indifferent if the payback period is greater than the maximum acceptable payback period.

Which of the Following Statements Is True of Payback Period