Adam and Eve are thinking of leaving their high pressure jobs in finance and buying a frozen yogurt franchise. The franchise will generate strong positive cash flow initially, but the potential owners are not sure how long demand for this product will continue into the future. A useful technique for making this decision would be
A) the discounted payback method.
B) the profitability index.
C) the internal rate of return.
D) the modified internal rate of return.

Question

Quizplus · Accepted Answer

The discounted payback method is useful in this scenario because it takes into account the time value of money and helps determine how long it will take to recover the initial investment in present value terms. This is particularly relevant for Adam and Eve, who are concerned about the uncertain longevity of demand for the frozen yogurt franchise.

Adam and Eve Are Thinking of Leaving Their High Pressure