Question

Which of the following statements is (are) true concerning the comparison between payback and discounted payback?

I. From a financial point of view, the discounted payback method is preferred over the payback method.
II. The discounted payback is more difficult to compute and thus is not as widely used as the payback method.
III. Both methods are biased towards liquidity.
IV. Both methods consider the time value of money.
A) I and III only
B) II and IV only
C) I and II only
D) I, II, and III only
E) I, II, III, and IV

Answer 1

The correct statements comparing payback and discounted payback methods are that the latter is preferred for its financial perspective, more difficult to compute, and both methods prioritize liquidity. The regular payback method does not consider the time value of money.

Step-by-step explanation:

Among the given statements about the comparison between the payback method and the discounted payback method, the following is true:

• Statement I: From a financial point of view, the discounted payback method is preferred over the payback method.
• Statement II: The discounted payback is more difficult to compute and thus is not as widely used as the payback method.
• Statement III: Both methods are biased towards liquidity.

Statement IV is incorrect because only the discounted payback method considers the time value of money, whereas the regular payback method does not. Therefore, the correct answer is D) I, II, and III only.