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What is the payback period?

  1. A The time required for cumulative cash inflows to recover the initial investment
  2. B The life of the asset
  3. C The time until the loan is repaid
  4. D The period over which depreciation is charged
Answer

The time required for cumulative cash inflows to recover the initial investment

Payback is simple and useful for liquidity screening, but it ignores the time value of money and all cash flows after the payback point.

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