Discounted payback period differs from simple payback period because it:
Correct answer: C. Accounts for the time value of money
- A. Excludes the initial investment
- B. Uses accounting profit instead of cash flow
- C. Accounts for the time value of money
- D. Includes only cash flows after payback
Explanation
Discounted payback converts future cash inflows into present values before determining when the investment is recovered. Simple payback normally uses undiscounted cash flows.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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