The formula for Payback Period is Investment Required Divided by Annual Net Cash Inflow.单项选择题
A
True
B
False

Question

The formula for Payback Period is Investment Required Divided by Annual Net Cash Inflow.

BlackTom AI · Accepted Answer

Payback period equals the initial investment divided by the (equal) annual net cash inflow when cash inflows are uniform each year. This is the standard simple-payback formula used to measure how many years it takes for cumulative net cash inflows to recover the initial outlay.

Relevant concepts:
- Payback period: time required to recover the original investment from net cash inflows.
- Simple (undiscounted) payback applies when annual inflows are equal; for unequal inflows you compute cumulative totals year by year.
- Discounted payback accounts for time value of money and uses discounted cash flows (different formula).

Step-by-step reasoning:
1. Let Investment Required = I and Annual Net Cash Inflow = C (assumed constant each year).
2. After 1 year cumulative inflow = C; after 2 years = 2C; after n years = nC.
3. The payback point satisfies nC = I, so n = I / C.
4. Therefore the payback period (in years) = Investment Required ÷ Annual Net Cash Inflow.

Example with numbers:
- Suppose I = $100,000 and C = $25,000 per year.
- Payback = 100,000 ÷ 25,000 = 4 years.
Intermediate steps: compute cumulative inflows: Year1 = 25,000; Year2 = 50,000; Year3 = 75,000; Year4 = 100,000 → investment recovered in year 4.

Why the correct answer is correct:
- The provided formula exactly matches the algebraic derivation for equal annual net inflows, so the statement is true.

Why the other option (False) is incorrect:
- Marking False would ignore that the simple payback formula is precisely Investment ÷ Annual Net Cash Inflow under the usual assumption of constant annual inflows. While caveats exist (uneven inflows, discounted payback), they do not invalidate the simple formula as stated.

Conclusion: The correct choice is True, which matches the provided answer.

The formula for Payback Period is Investment Required Divided by Annual Net Cash Inflow.单项选择题

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