The Payback Period

question 39

Multiple Choice

The payback period:

• A)Is the length of time necessary to recover the entire cost of an investment from its resulting annual net cash flow.
• B)Is the length of time necessary to recover the entire cost of an investment from its resulting annual net income.
• C)Takes into consideration the profitability of an investment over its entire life,but ignores the timing of its future cash flows.
• D)Takes into consideration both the profitability of an investment over its entire life and the timing of its future cash flows.

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Definitions:

Hidden Characteristic

In economics and contract theory, a hidden characteristic refers to information about a product, service, or individual that is not known beforehand by one of the parties in a transaction, potentially leading to problems like adverse selection.

Asymmetric Information

A situation where one party in a transaction has more or superior information compared to another.

Car Insurance

A contract between a vehicle owner and an insurance company, providing financial protection against physical damage or bodily injury from traffic collisions.

Asymmetric Information

An instance where in a transaction, one entity has higher or more detailed information than another.