Companies usually accept the project with the ________ when using the payback method to determine a project's economic feasibility.
A)longest payback period
B)weighted average payback period
C)payback period that is equal to the project's economic life
D)shortest payback period

Question

Quizplus · Accepted Answer

The payback method suggests that a company should accept the project with the shortest payback period. This is because the payback period measures the time it takes for the initial investment to be repaid, and the shorter the payback period, the faster the company can recoup its investment and reduce its risk. Choosing the longer payback period (A) or the weighted average payback period (B) would mean a longer wait before recouping the initial investment, which increases the risk. Choosing the payback period that is equal to the project's economic life (C) may not necessarily be the best choice because it does not consider the amount of profits that can be generated beyond the payback period.

Companies Usually Accept the Project with the ________ When Using