What is the forecasted duration required to recover an initial investment termed________?
Show answer Hide answer
Answer: A. Payback period
Explanation
The payback period is the estimated time needed for a project's cash inflows to recover its initial cash outlay. Financial analysts calculate this metric by accumulating expected cash flows until the initial investment is covered. It serves as a straightforward indicator of how long capital remains tied up in a specific project. Capital budgeting involves planning and evaluating long-term corporate investments and capital expenditures. Traditional payback analysis ignores the time value of money unless a discounted payback variation is used. Firms often establish maximum acceptable payback thresholds to screen out overly sluggish investment proposals.
Small business owners frequently use the payback period because of its computational simplicity and clarity. Comparing payback periods helps managers identify projects that return invested capital most rapidly. Financial planners combine payback analysis with net present value calculations for comprehensive project evaluation. Forecasted period is a vague descriptive phrase rather than the standard financial term for cash recovery. Original period is an incorrect generic label that lacks specific financial meaning in capital budgeting. Investment period usually refers to the holding horizon of an asset rather than cost recovery duration.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
Related questions
Q1. How are short-term obligations issued by the US government classified____________?
Show answer Hide answer
Answer: B. treasury bills
Treasury bills are short term marketable debt securities issued directly by the federal government to finance operations. These obligations mature in one year or less and are backed entirely by the sovereign government a...
Q2. How is the payback period defined where expected cash flows are discounted using the project's cost of capital___________________?
Show answer Hide answer
Answer: A. Discounted payback period
The discounted payback period measures time required to recover initial investment using present values. It discounts expected future cash flows using the project's specific cost of capital. This metric improves upon tra...
Q3. How is this type of negotiable certificate of deposit generally classified___________?
Show answer Hide answer
Answer: B. bearer instrument
A negotiable certificate of deposit that can be transferred freely without formal registration is a bearer instrument. Investors can sell these money market instruments in the secondary market prior to maturity easily. P...
Q4. The portion of earnings retained by a company for future business expansion is designated as:
Show answer Hide answer
Answer: B. Retained Earnings
Retained earnings represent the cumulative net income that a company chooses to reinvest rather than distribute. Keeping these funds inside the business provides internal capital for future operational growth and expansi...
Q5. Which of the following terms refers to the risk that arises for bond owners from fluctuating interest rates?
Show answer Hide answer
Answer: B. Interest Rate Risk
Interest rate risk refers to the potential for bond prices to fluctuate with market rates. When market interest rates rise, existing fixed-rate bond prices fall in response. Bond investors face this price volatility risk...
Q6. If you deposit Rs. 5,000 in a bank paying 8% annual compound interest, what will your investment be worth after 4 years?
Show answer Hide answer
Answer: D. Rs. 6,802
Compound interest calculations on Rs. 5,000 at an 8% annual rate over 4 years yield approximately Rs. 6,802. Applying the compound formula multiplies the principal by one plus the interest rate raised to the fourth power...