The payback period of a project 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.
D) a period of time sufficient to earn a rate of return equal to the firm's cost of capital.

Question

Ibrahim Othman · Accepted Answer

Final Answer : B, Explanation :  The payback period is the length of time it takes for the cash inflows from a project to equal its initial cost. Option B accurately describes this concept. Option A refers to the payback period in terms of profits instead of cash flows. Option C describes the average payback period, which is a different metric. Option D describes the cost of capital, which is unrelated to the payback period.

Definitions

Learning Objectives

Learning Objectives

Related questions