Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 177

Which of the following statements is true regarding the capital budgeting procedure known as discounted payback period?

Answer options

• A. It calculates the overall value of a project.
• B. It ignores the time value of money.
• C. It calculates the time a project takes to break even.
• D. It begins at time zero for the project.

Correct answer: C

Explanation

The correct answer is C, as the discounted payback period specifically measures how long it takes for a project to recover its initial investment in present value terms. Option A is incorrect because it does not assess overall project value; option B is wrong since the method does consider the time value of money; and option D is misleading as it relates to the project's timeline rather than the calculation itself.