Asked by Samantha Rojas on Jun 20, 2024
Verified
A project that just breaks even on a cash basis has a discounted payback period equal to its life.
Cash Basis
An accounting method where revenues and expenses are recorded only when cash is received or paid, respectively.
Discounted Payback Period
The time required to recover an investment's costs, taking the time value of money into account by discounting future cash flows.
- Develop an awareness of the distinctions between cash, accounting, and financial break-even points.
- Comprehend the association between break-even analysis and the recuperation times of projects.
Verified Answer
SJ
Sarah JasmineJun 23, 2024
Final Answer :
False
Explanation :
The discounted payback period is the time it takes for the net present value of the cash flows to equal the initial investment. If a project just breaks even on a cash basis, its discounted payback period would be longer than its life, because discounting reduces the value of future cash flows, making it take longer to recover the initial investment.
Learning Objectives
- Develop an awareness of the distinctions between cash, accounting, and financial break-even points.
- Comprehend the association between break-even analysis and the recuperation times of projects.