Asked by Arber Gashi on Jun 03, 2024
Verified
The calculation of the payback period for an investment when net cash flow is even (equal) is:
A) Cost of investment/Annual net cash flow
B) Cost of investment/Total net cash flow
C) Annual net cash flow/Cost of investment
D) Total net cash flow/Cost of investment
E) Total net cash flow/Annual net cash flow
Payback Period
The amount of time it takes for an investment to generate enough cash flow to recoup its original cost.
Net Cash Flow
The difference between a company's cash inflows and outflows within a specified period.
- Apprehend the essentiality and formula for the calculation of the payback period in investment deliberations.
Verified Answer
CB
christopher bagwellJun 07, 2024
Final Answer :
A
Explanation :
The payback period is the length of time it takes to recover the cost of the initial investment. When net cash flow is even, or equal, we can use the formula of dividing the cost of the investment by the annual net cash flow. This will give us the number of years it will take to recover the initial investment. Therefore, the correct choice is A) Cost of investment/Annual net cash flow.
Learning Objectives
- Apprehend the essentiality and formula for the calculation of the payback period in investment deliberations.