Which is an advantage of the Discounted Payback Period?

The Discounted Payback Period is a variation of the Payback Period that incorporates the time value of money by discounting the cash flows to their present value before calculating how long it takes to recover the initial investment. This approach ensures that the timing of cash flows is taken into account, reflecting the principle that a dollar received in the future is worth less than a dollar received today. By discounting future cash flows, the method provides a more accurate measure of how quickly an investment will return its initial cost, considering the opportunity cost of capital and the diminishing value of future cash inflows.

This focus on the time value of money makes the Discounted Payback Period a more sophisticated and relevant measure for evaluating investment projects compared to the simple Payback Period, which does not account for cash flow timing.

While it is beneficial for determining the recovery period of an investment, other options listed do not accurately reflect the capabilities or characteristics of the Discounted Payback Period. For instance, it does not accept all investments indiscriminately regardless of net present value, nor does it favor long-term projects, and it also does not consider cash flows beyond the cutoff date, which is a characteristic of other investment appraisal methods.