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:

AYes -- this will account for the difference in duration of the two projects

BNo -- this will not account for the difference in duration of the two projects

CYes -- this will provide Fred with a rate of return that is useful to accurately forecast profits

DNo -- there is no formula to calculate this, and a discount factor must be used

Show Suggested 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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Willodean

16 days ago

I remember discussing payback analysis in class, but I'm not sure it really considers project duration effectively.

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