The Payback Period Is Determined Using Which of the Following

question 99

Multiple Choice

The payback period is determined using which of the following formulas?

• A) Amount to be invested / Annual average net income
• B) Annual net cash flow / Amount to be invested
• C) Annual average net income / Amount to be invested
• D) Amount to be invested / Annual net cash flows

---

Definitions:

Indirect Method

A method used in cash flow statements to adjust net income for the changes in non-cash accounts to arrive at operating cash flow.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within a year or within the operating cycle of a business.

Fixed Assets

Tangible assets, such as property, plant, and equipment, used in the operating activities of a business and not intended for sale in the normal course of business.

Indirect Method

A way of calculating cash flows for the cash flow statement where net income is adjusted for changes in balance sheet accounts to reflect cash operations.