Simple Payback Quiz

What is the formula for calculating simple payback?

• Initial Investment / Annual Cash Inflow

• Initial Investment + Annual Cash Inflow

• Initial Investment * Annual Cash Inflow

• Initial Investment / Annual Cash Outflow

What is the main advantage of using simple payback as a financial evaluation method?

• Easy to understand and calculate.

• Takes into account the time value of money.

• Provides a comprehensive analysis of the project's profitability.

• Considers all cash flows over the project's lifespan.

What is one limitation of using simple payback as a financial evaluation method?

• It does not consider the risk associated with the investment.

• It does not provide a comprehensive analysis of the project's profitability.

• It does not take into account the opportunity cost of the investment.

• It does not consider the time value of money.

Calculate the simple payback period for an investment that costs $10,000 and generates annual cash flows of $2,500.

• 6 years

• 10 years

• 4 years

• 2 years

Calculate the simple payback period for an investment that costs $50,000 and generates annual cash flows of $10,000.

• 2

• 10

• 5

• 25

What is the simple payback period if an investment costs $20,000 and generates annual cash flows of $5,000?

• 4 years

• 6 years

• 10 years

• 2 years

Calculate the simple payback period for an investment that costs $30,000 and generates annual cash flows of $7,500.

• 4 years

• 10 years

• 6 years

• 2 years