- CFA Exams
- CFA Level I Exam
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 3. Investment Decision Criteria
CFA Practice Question
For projects with conventional cash flows and positive discount rates, the payback period will be shorter than the discounted payback period. True or False?
Correct Answer: True
User Contributed Comments 6
| User | Comment |
|---|---|
| loisliu88 | can anyone explain it for me. thanks |
| Patrick15 | the discounted payback rate will decrease the value of the returns, the payback period maintains the present value without discounting, so each payment is worth relatively more |
| jonan203 | if a $1,000 investment pays $250 every year for four years, if you discount each $250 payment by x% discount rate, you wouldn't have your $1,000 investment back in the fourth year no matter what discount rate you used. the larger the discount rate, the larger the payback period becomes |
| Shaan23 | DOes it matter if its Conventional or Non conventional? Isnt it the same for both? |
| jabiller | I believe conventional means always positive cashflow and non means there would be negative cashflows or returns. |
| MathLoser | Time value of money, guys. |