The payback period of Project A is 2 years while that of Project B is 4 years. Which of the following statements is true?
A)Project B must be riskier than Project A since it has a longer payback period.
B)The IRR for Project A will be higher than that of Project B since Project A offers a quicker return on its investment.
C)Project A should be chosen since it will increase value sooner than will Project B.
D)None of the above is a true statement.

Question

Quizplus · Accepted Answer

The payback period alone does not determine the riskiness of a project, the Internal Rate of Return (IRR), or the value it adds to the company. Other factors such as cash flow patterns, cost of capital, and overall profitability need to be considered.

The Payback Period of Project a Is 2 Years While