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Discounted payback differs from simple payback in that it

  • A.counts the savings at their present value
  • B.counts only the savings after the first year
  • C.excludes the initial investment from the calculation
  • D.assumes the savings grow with inflation

Answer: A

Because each year's saving is worth less than the last, the discounted payback is always longer than the simple one, and a measure with a marginal simple payback may never pay back at all on this basis. It is a useful middle ground between the two extremes.

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