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The discounted payback period differs from the simple form in

  • A.ignoring the first cost altogether
  • B.discounting the receipts before accumulating them
  • C.counting only the receipts after the first year
  • D.including the salvage value in the receipts

Answer: B

Correct answer: discounting the receipts before accumulating them

The discounted form applies the required rate to each receipt before adding it to the running total, so the recovery must cover both the capital and the interest on it. This removes one of the two objections to the simple form; it does not remove the other, since flows beyond the payback point are still ignored.

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