Two investments with exactly the same payback periods are not equally valuable to an investor because the timing of net cash flows may be different.

Question

Quizplus · Accepted Answer

Even though the payback periods are the same, the timing of net cash flows can vary between investments. One investment may have a larger cash outflow in the earlier years, while another may have larger inflows in the later years. The timing of cash flows is important because an investor may prefer to receive higher returns sooner rather than later, or vice versa, based on their financial goals and requirements. Therefore, investments with the same payback period but different cash flow patterns may have different values to an investor.

Two Investments with Exactly the Same Payback Periods Are Not