The Payback Period
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Questions and Answers

Which of the following statements accurately describes the payback period?

  • It is the time it takes for an investment to generate enough cash flows to cover all expenses
  • It is the time it takes for an investment to generate a return on investment
  • It is the time it takes for an investment to generate a profit
  • It is the time it takes for an investment to recover the initial cost (correct)

    • Why is the payback period important for businesses?

  • It is a legal requirement for businesses
  • It guarantees a high return on investment for businesses
  • It ensures businesses achieve long-term financial stability
  • It helps businesses make informed choices about investments (correct)

    • What does the payback period indicate about an investment?

  • The liquidity of the investment
  • The risk associated with the investment
  • The time it takes to generate a return on investment (correct)
  • The profitability of the investment

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