A Project Has a Required Payback Period of Three Years

question 14

Multiple Choice

A project has a required payback period of three years.Which one of the following statements is correct concerning the payback analysis of this project?

• A)The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted.
• B)The cash flow in year three is ignored.
• C)The project's cash flow in year three is discounted by a factor of (1 + R)³.
• D)The cash flow in year two is valued just as highly as the cash flow in year one.
• E)The project is acceptable whenever the payback period exceeds three years.

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Definitions:

Clever Hans

Refers to a case study from early 20th century of a horse that was claimed to perform arithmetic and other intellectual tasks, later found to be responding to involuntary cues from humans.

Flashing Signals

Lights that blink on and off to convey messages, warnings, or signals, commonly used in road traffic controls and electronic devices.

Principle of Parsimony

A methodological principle suggesting that the simplest explanation is often the correct one when comparing theories with equal predictive capabilities.

Parsimonious

A characteristic of an explanation or theory that requires the fewest assumptions, variables, or changes to be effective or accurate.