medium · Principles of Finance

How does the discounted payback period resolve a specific 'failure mode' of the simple payback period?

1. It incorporates the risk-adjusted cost of capital into the timing of cash flow recovery.
2. It accounts for the 'scale' problem when comparing mutually exclusive projects.
3. It eliminates the need for an arbitrary 'cut-off' date for project acceptance.
4. It provides a dollar-denominated measure of total shareholder wealth creation.

Sign up free to see the explanation and track your rank →