alleryStart learning →The discounted payback period improves on plain payback by first doing what to the cash flows?
ADuplicating them
BDeferring them
CDeleting them
DDiscounting them
Answer & Solution
Correct answer: D. Discounting them
1. Plain payback adds cash flows from different years as if they were equal.
2. The discounted version repairs that flaw before counting.
3. It discounts the cash flows using the cost of funds, then finds the payback period.
4. It still ignores anything arriving after breakeven.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 16 'How Companies Think about Investing', sections 16.1-16.5_
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