25.5.A.1 - Payback Period (PBP)
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Practice Questions
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Define Payback Period.
💡 Hint: Think about cash flow recovery time.
What is the formula for calculating PBP?
💡 Hint: Remember what you divide by what.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the main focus of the Payback Period?
💡 Hint: Focus on recovery terms.
True or False: The Payback Period considers all cash flows over the life of the project.
💡 Hint: Recall the limitations of PBP.
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Challenge Problems
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A company is considering a project with an initial investment of $50,000. The cash inflow for the first four years is expected to be $10,000 each year, and in the fifth year, the cash inflow will rise to $30,000. Calculate the PBP.
💡 Hint: Add cash inflows year by year to see the point of recovery.
Analyze a project that has a PBP of 2 years but provides very low profitability in subsequent years. Discuss the implications for the stakeholders.
💡 Hint: Consider the long-term vs. short-term benefits.
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