What is the payback period of a project whose NPV is positive?

Question

Quizplus · Accepted Answer

The payback period of a project whose NPV is positive should be lower than the project life time. This is because if the NPV is positive, it means that the project is generating enough cash flows to cover its initial investment and provide a return. Therefore, the payback period should be shorter than the project life time to ensure that the project will generate a positive return in a shorter period of time. Option A is incorrect because a payback period of less than 1 would mean that the project pays back its initial investment in less than one year, which might not be feasible or desirable. Option B is incorrect because a payback period higher than 1 would mean that the project takes longer to generate enough cash flows to cover its initial investment and provide a return, which would decrease the project's profitability. Option D is incorrect because a payback period higher than the project life time is not possible.

What Is the Payback Period of a Project Whose NPV