Question
Question 3 One of the advantages of the payback period is that is emphasises on the project's liquidity. True False
Answer
4.1
(187 Votes)
Daniel
Professional · Tutor for 6 years
Answer
True
Explanation
## Step 1:Analyze the statement to understand what it is stating. The question states, "One of the advantages of the payback period is that it emphasizes on the project's liquidity."## Step 2:Kauffman, an investment term "payback period" is defined as the period of time required to recoup the funds expended in an investment or to reach the breakeven point. It is used by investors and businesses to evaluate investments or projects, regarding how long it will take to recover the initial investment outlay. ## Step 3:The notion of liquidity in economic theory refers to the accessibility of cash when needed. For instance, a portfolio of stocks and shares is less liquid than cash because it takes time to convert it to cash. In the perspective of projects/investments, if a project recovers its investment in a shorter duration (shorter payback period), it means the cash can be re-used soon, indicating that the project has greater liquidity than others with a longer payback period. Considering the above explanations, it is quite clear that payback period emphasizes project's liquidity.