The payback period is the length of time required to recover the initial cost of an investment from its resulting annual net cash flow. It does not take into consideration the profitability of the investment over its entire life or the timing of its future cash flows.

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The Payback Period

Question 51

Multiple Choice

The payback period:

A) Is the length of time necessary to recover the entire cost of an investment from its resulting annual net cash flow.
B) Is the length of time necessary to recover the entire cost of an investment from its resulting annual net income.
C) Takes into consideration the profitability of an investment over its entire life,but ignores the timing of its future cash flows.
D) Takes into consideration both the profitability of an investment over its entire life and the timing of its future cash flows.

Correct Answer: