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CIPS L6M5 Exam - Topic 3 Question 24 Discussion

Fred is comparing two possible projects that will last for different durations.His company can only select one project due to financial constraints.He needs a method to compare the financial benefits of both projects.Q: Is a payback analysis a useful tool for Fred to use?Answer Options:
A) Yes -- this will account for the difference in duration of the two projects
B) No -- this will not account for the difference in duration of the two projects
C) Yes -- this will provide Fred with a rate of return that is useful to accurately forecast profits
D) No -- there is no formula to calculate this, and a discount factor must be used

CIPS L6M5 Exam - Topic 3 Question 24 Discussion

Actual exam question for CIPS's L6M5 exam
Question #: 24
Topic #: 3
[All L6M5 Questions]

Fred is comparing two possible projects that will last for different durations.

His company can only select one project due to financial constraints.

He needs a method to compare the financial benefits of both projects.

Q: Is a payback analysis a useful tool for Fred to use?

Answer Options:

Show Suggested Answer Hide Answer
Suggested Answer: A

A Payback Analysis (p.72) calculates how long it takes for a project to recover its initial investment. It accounts for project duration but does not provide a rate of return (Option C). Discount factors (Option D) are used in Net Present Value (NPV) analysis, not Payback Analysis. [P.72]


by Margurite at May 16, 2026, 05:52 PM

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Derick
11 hours ago
A payback analysis doesn't consider project duration differences.
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Denny
6 days ago
I vaguely remember that we talked about discount factors being important for comparing projects of different lengths, so maybe payback isn't the best choice here.
upvoted 0 times
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Daron
11 days ago
I feel like payback analysis could be useful, but I can't recall if it gives a clear picture of long-term profitability.
upvoted 0 times
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Carey
16 days ago
I think we did a practice question where payback period was mentioned, and it seemed like it only focused on cash flow timing, not duration differences.
upvoted 0 times
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Willodean
2 months ago
I remember discussing payback analysis in class, but I'm not sure it really considers project duration effectively.
upvoted 0 times
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