Which of the following statements is correct?
A)A weakness of both payback and discounted payback is that neither accounts for cash flows received after the payback.
B)Discounted payback uses a more aggressive reinvestment rate assumption than payback.
C)Neither payback nor discounted payback uses time value of money concepts.
D)None of these statements is correct.

Question

Quizplus · Accepted Answer

Payback and discounted payback both consider the time it takes to recover the initial investment, but neither accounts for cash flows received after the payback. Therefore, statement A is correct. Statement B is incorrect, as discounted payback actually uses a more conservative reinvestment rate assumption than payback. Statement C is also incorrect, as both payback and discounted payback do use time value of money concepts.

Which of the Following Statements Is Correct