Payback Period

Correct Answer: 5 years

The correct answer is 5 years. To calculate the payback period, we need to determine how long it will take for the cumulative cash flows to equal the initial investment. Initial investment: $250,000 Annual cash flow: $50,000 Payback period calculation: $250,000 / $50,000 per year = 5 years This simple calculation shows that it will take exactly 5 years for the project to recover its initial investment. The other answers are incorrect: 4 years and 6 months is too short, as the project would not have fully recovered the initial investment by this time. 5 years and 3 months considering time value of money is not applicable in this case. The question does not mention time value of money, and the standard payback period calculation does not account for it. 4 years assuming no inflation or interest rates is also incorrect. Even when not considering inflation or interest rates, the payback period is still 5 years based on the given cash flows. It's important to note that while the payback period is a useful metric for quickly assessing how long it takes to recover an investment, it does have limitations. It doesn't account for cash flows beyond the payback period or the time value of money. For more comprehensive project evaluation, other methods like Net Present Value (NPV) or Internal Rate of Return (IRR) should be considered.

Correct Answer: 4 years

The payback period is calculated by dividing the original investment by the annual cash inflow. In this case, the firm has invested $200,000 and expects an annual cash inflow of $50,000. By dividing $200,000 by $50,000, we get 4. Therefore, the estimated payback period for the firm is 4 years. The other answers are wrong because the calculation does not yield their value.

Correct Answer: 4 years

The best answer is 4 years. Here's why: Step 1: Understand the concept of payback period The payback period is the time it takes to recover the initial investment through the project's cash flows. Step 2: Calculate the payback period Initial investment: $300,000 Annual cash flow: $75,000 Payback period = Initial investment / Annual cash flow = $300,000 / $75,000 = 4 years Step 3: Evaluate other answers The other answers introduce additional factors that are not mentioned in the question, such as time value of money, market fluctuations, inflation, and risk factors. While these are important considerations in real-world project management, the question asks for the 'approximate payback period' based on the given information, which is best calculated using the simple payback period formula. Therefore, the most accurate answer based on the information provided is 4 years.