When Calculating a Project's Payback Period, Cash Flows Are Discounted

question 98

Multiple Choice

When calculating a Project's payback period, cash flows are discounted at:

• A)the opportunity cost of capital.
• B)the internal rate of return.
• C)the risk-free rate of return.
• D)a discount rate of zero.

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Definitions:

Present Value

The current evaluation of a future sum of money or chain of cash inflows, when calculated at an explicit rate of return.

Compounded Semiannually

Compounded Semiannually refers to the process of applying interest to both the initial principal and accumulated interest of a deposit or loan on a twice-yearly basis.

Present Value

The today's price of a future amount of money or streams of cash inflow, under a specified yield rate.

Compounded Monthly

Refers to the process of calculating interest where the accumulated interest is added to the principal sum at the end of each month, leading to "interest on interest."