By measuring how quickly the firm recovers its initial investment, the payback period gives some implicit consideration to the timing of cash flows and therefore to the time value of money.

Question

Quizplus · Accepted Answer

The statement is true. The payback period takes into account the timing of cash flows, which means it implicitly considers the time value of money. This is because cash received earlier is worth more than the same amount received later due to its potential to be invested and earn a return.

By Measuring How Quickly the Firm Recovers Its Initial Investment