The payback period is deﬁned as the length of time it requires for an investment to generate suﬃcient cash ﬂows to recoup:
A) The required rate of return on the investment.
B) The initial cost of the investment.
C) All of the initial cost plus the ongoing maintenance costs of the ﬁxed assets required by the investment.
D) Both the initial cost of the investment and the amount needed to provide the required rate of return.
E) The future value of the initial cost of the investment.

Question

Quizplus · Accepted Answer

The payback period is the time required for the investment to generate enough cash flows to cover the initial cost of the investment. Option B is the only choice that correctly lists the initial cost of the investment as what needs to be recouped. Option A refers to the required rate of return, which is not necessarily the same as the initial cost, while options C, D, and E include additional costs beyond the initial cost.

The Payback Period Is Deﬁned as the Length of Time