Practice Problem – Payback Period Rule

Practice Question

Cases in Finance
Capital Budgeting
Payback Period Rule
MCQs

A company has an initial investment of $200,000 and cash inflows of $50,000 for 5 years. What is the payback period?

Answer +
B
Step-by-step solutions +
To calculate the **Payback Period**, use the formula:

Payback Period = Initial Investment / Annual Cash Flow

Substituting the values:
$200,000 / $50,000 = **4 years**

This means the company will recover its initial investment in 4 years.

Final Answer: B