Which of the following statement about payback period analysis is NOT correct? a

Question

Which of the following statement about payback period analysis is NOT correct?

a) Payback period is defined as the number of years necessary for cash flows to recover the original investment. b) Both conventional payback and discounted payback ignore all cash flows that occur after the payback period. c) The more the payback, the more liquid the project. d) The discounted payback solves the conventional payback's problem of not considering the project's cost of capital in the payback calculation.

Explanation / Answer

Answer is C:

Explanation: Pay back period indicates that the initial investment can be reovered in howmany years for a project. If the payback period is more, the company will be able to recover the initial investment too late, Hence, the project is not more liquid. Suppose the project to be more liquid, the payback period should be smaller

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