The payback period of an investment is defined as ____.
A) the number of years required for cumulative profits from a project to equal the initial outlay
B) the number of years required for the cumulative cash flows from a project to equal the initial outlay
C) the number of years required for the cumulative cash flows from a project to equal the average investment in the project, when depreciation is considered
D) a period of time sufficient to earn a rate of return equal to the firm's cost of capital

Question

Quizplus · Accepted Answer

The payback period of an investment is the time required for the cumulative cash flows from a project to equal the initial outlay. Option A refers to the calculation of the payback period, rather than the definition. Option C is referring to the concept of average accounting return, not payback period. Option D is referring to the concept of the required rate of return, which is not the same as the payback period.

The Payback Period of an Investment Is Defined as ____