Without using formulas, provide a deﬁnition of payback period.
A) A project analysis tool that determines the amount of time required for an investment to generate cash ﬂows to recover its initial cost.
B) A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash ﬂows to equal its initial cost.
C) A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash ﬂow will
Repay the investment.
D) A project analysis tool that measures the acceptability of a project by determining the amount of proﬁt that can be expected based on an investment made.
E) A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.

Question

Quizplus · Accepted Answer

Payback period is defined as the length of time it takes for an investment to generate cash flows sufficient to recover its initial cost. It is a simple measure of investment profitability and risk that does not take into consideration the time value of money. The formula for payback period is not necessary for this definition.

Without Using Formulas, Provide a Deﬁnition of Payback Period