GENERAL KNOWLEDGE

Detailed explanation-1: -Q:4 Which of the accompanying addresses how much time it takes for a capital budgeting undertaking to recuperate its underlying expense? Answer: (B) Payback period. Explanation: A basic strategy for capital budgeting is the Payback Period.

Detailed explanation-2: -The payback period disregards the time value of money and is determined by counting the number of years it takes to recover the funds invested. For example, if it takes five years to recover the cost of an investment, the payback period is five years.

Detailed explanation-3: -A simple method of capital budgeting is the Payback Period. It represents the amount of time required for the cash ows generated by the investment to repay the cost of the original investment. For example, assume that an investment of $600 will generate annual cash ows of $100 per year for 10 years.

Detailed explanation-4: -Payback Period A short PB period is preferred as it indicates that the project would “pay for itself” within a smaller time frame. In the following example, the PB period would be three and one-third of a year, or three years and four months.

Detailed explanation-5: -The payback period in capital budgeting gives the number of years it takes for you to recover the cost of the investment. For example, if it takes 10 years for you to recover the cost of the investment, then the payback period is 10 years. The payback period is an easy method to calculate the return on investment.