The calculation of the payback period for an investment when net cash flow is even (equal) is:
A) Annual net cash flow/Cost of investment.
B) Cost of investment/Total net cash flow.
C) Total net cash flow/Annual net cash flow.
D) Cost of investment/Annual net cash flow.
E) Total net cash flow/Cost of investment.

Question

Quizplus · Accepted Answer

The payback period represents the length of time it takes for an investment to recoup its initial cost. When net cash flow is even, the payback period is calculated by dividing the initial cost of the investment by the annual net cash flow. Therefore, the correct formula to use is Cost of investment/Annual net cash flow. Choice D is the option that fits this criteria.

The Calculation of the Payback Period for an Investment When