When comparing project selection methods, the payback period technique is considered more robust than Net Present Value (NPV) because it accounts for the time value of money.
False
True
The correct answer is False. This statement is incorrect for several reasons:
Net Present Value (NPV) does account for the time value of money, while the payback period does not. NPV discounts future cash flows to their present value, recognizing that money today is worth more than the same amount in the future.
The payback period is a simpler method that only calculates how long it takes to recover the initial investment. It does not consider cash flows beyond the payback period or their timing.
NPV is generally considered more robust as it evaluates the project's entire lifespan and provides a clearer picture of the project's potential to add value to the organization.
While the payback period is easy to understand and communicate, it has limitations that make it less comprehensive for project selection compared to NPV.
As a project manager, it's important to understand the strengths and weaknesses of various project selection methods. While the payback period can be useful for quick assessments or in situations where rapid recovery of investment is crucial, NPV typically provides a more thorough financial analysis for project selection decisions.
Bash is our AI bot, trained to help you pass your exam. AI Generated Content may display inaccurate information, always double-check anything important.
All plans include the following perks.
Our pricing is simple. Full access to all certifications and exams, for one price.
As many practice tests for as many topics as you want.
Use study mode non-stop, no limits.
No annoying ads and popups. Study without distractions.
Track your scores over time in study mode and report cards.
See how you improve over time, and where you need to focus.
Access our store with even more discounts than before.
Unlimited access to all PBQs and be prepared for the real thing.
Create an account or sign in to access our study materials.