The correct response is c. cost of the investment by the net annual cash inflow. The cost of the investment is divided by the net annual cash inflow to determine the cash payback period.
Payback does not take time value of money into account. The term "payback period" refers to the amount of time it takes for something to "pay for itself." Shorter payback periods are preferred over longer ones, all things being equal. Payback period is well-liked due to its simplicity of usage despite the acknowledged drawbacks detailed below. See the cutoff time. The phrase is frequently used in relation to energy efficiency technology, maintenance, upgrades, or other modifications in different types of investment fields. For instance, assuming given prices, a compact fluorescent light bulb might be said to have a payback period of a specific number of years or working hours. Reduced operational costs serve as the investment's return in this case. Despite being primarily a financial term, the idea of a payback period is occasionally applied to other uses, such as energy payback period (the amount of time over which a project's energy savings equal the amount of energy used since project inception); these other terms may not be widely accepted or standardized.
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