Question

A project's payback period can be evaluated by comparing the

a. payback period to the net present value

b. payback period to the project's useful life.

c. payback period to accounting rate of return

d. payback period to the required rate of return

Answer 1

Payback period is the time in years within which the project is expected to recover the initial amount invested. The payback period is compared with the project's useful life to determine whether a project is viable.

• If payback period is less than the project useful life, the project should be accepted.
• If payback period is more than the project useful life, the project should not be accepted.

Thus the answer is: b. payback period to the project's useful life.

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