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    Question

    ABC Ltd made an initial investment of Rs. 50,000 and

    earned Cash Inflows of Rs. 25000 every year till 4 years. What is the payback period for ABC Ltd?
    A 4 years Correct Answer Incorrect Answer
    B 3 years Correct Answer Incorrect Answer
    C 3.5 years Correct Answer Incorrect Answer
    D 2 years Correct Answer Incorrect Answer
    E 2.5 years Correct Answer Incorrect Answer

    Solution

    Payback period is a capital budgeting technique. It is the time taken for the project cash inflows to return the original amount of investment made in the project. It does not consider the time value of money in its calculation. Payback period           = investment/yearly cash inflow = 50000/25000 = 2 years

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