BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Payback in months = (Income required to reach payback / Income generated in the payback year) ×12
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Payback in years = (Income required to reach profit / Income generated in the payback month) ×12
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Payback in months = (Costs in payback year / Income generated in the payback year) ×12
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Payback in years = (Costs in payback month / Costs generated in the payback year) ×12
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Detailed explanation-1: -The payback period is calculated by dividing the amount of the investment by the annual cash flow. Account and fund managers use the payback period to determine whether to go through with an investment.
Detailed explanation-2: -The correct answer is c. The payback method provides the years needed to recoup the investment in a project.
Detailed explanation-3: -The Payback Period shows how long it takes for a business to recoup an investment. This type of analysis allows firms to compare alternative investment opportunities and decide on a project that returns its investment in the shortest time if that criteria is important to them.
Detailed explanation-4: -The basic method of the discounted payback period is taking the future estimated cash flows of a project and discounting them to the present value. This is compared to the initial outlay of capital for the investment.