Question

Which of the following is true of the cash payback period? a. the longer the payback, the longer the estimated life of the asset b. the longer the payback, the sooner the cash spent on the investment is recovered c. the shorter the payback, the less likely the possibility of obsolescence d. All of these answers are correct.

Answer 1

Answer:

The correct answer is option c.

Explanation:

The payback period can be defined as the time taken to recover cost of investment. In other words, it is the time required to reach the investment at the break even level.

The longer the payback period, the more time it would take to recover the investment and vice versa.

Obsolescence is the risk that an asset will become obsolete.

The shorter the payback period, the sooner the investment cost would be recovered. The quickly the investment is recovered less likely will be the risk of obsolescence.