Discounted Payback Period

C

Discounted Payback Period is defined as the length of time required for an investment's cash flows, discounted at the investment's cost of capital, to cover its cost.

The correct answer is B. Payback Period.

The payback period is a measure used in capital budgeting to determine the length of time required for an investment's cash flows to recover or "pay back" its initial cost. It is a simple and widely used method for evaluating the feasibility of an investment project.

Here's a detailed explanation of each option and why they are correct or incorrect:

A. Weighted Average Cost of Capital (WACC): This is the average cost of financing for a company, taking into account the proportion of each source of capital (debt and equity) and their respective costs. WACC is used as a discount rate in capital budgeting to calculate the present value of cash flows. However, it does not directly measure the length of time required for cash flows to cover the investment's cost, so it is not the correct answer.

B. Payback Period: As mentioned earlier, the payback period measures the time it takes for an investment to recoup its initial cost through the cash flows it generates. It is calculated by adding up the cash flows received from the investment until the cumulative sum equals or exceeds the initial investment. The payback period is a relatively simple and intuitive metric but has limitations as it does not account for the time value of money. Nonetheless, it provides a quick assessment of how long it will take to recover the investment, making it a useful tool for certain types of decisions.

C. Discounted Payback Period: The discounted payback period is similar to the payback period, but it takes into account the time value of money by discounting the cash flows using the investment's cost of capital. It measures the length of time required for the discounted cash flows to recover the initial investment. While the discounted payback period is a more accurate measure than the simple payback period, it is not the answer to this question.

D. Net Present Valuing: "Net Present Valuing" is not a recognized term or concept in the field of finance. It seems to be a misnomer or a combination of "net present value" (NPV) and "discounting." NPV is a widely used technique in capital budgeting that calculates the present value of an investment's cash inflows and outflows. However, it does not directly represent the length of time required for cash flows to cover the investment's cost. Therefore, this option is incorrect.

E. Optimal Capital Structure: Optimal capital structure refers to the ideal mix of debt and equity financing for a company that maximizes its value and minimizes the cost of capital. It is not directly related to the length of time required for cash flows to cover an investment's cost, so this option is incorrect.

F. Capital Budgeting: Capital budgeting is the process of evaluating and selecting investment projects or capital expenditures. It involves analyzing the cash flows, costs, and benefits of potential investments to determine their financial viability and impact on the company's value. While capital budgeting is a broader concept that encompasses various evaluation techniques, it does not specifically represent the measure of the length of time required for cash flows to cover an investment's cost, so this option is incorrect.

In summary, the correct answer is B. Payback Period, as it directly represents the length of time required for an investment's cash flows to cover its cost.