Which of the following is true about the payback period example where the break-even is less than 34 months?

Which of the following is true about the payback period example where the break-even is less than 34 months?

• A. The investment is recovered within 34 months
• B. The investment takes more than 60 months
• C. The investment is never recovered
• D. The investment is recovered exactly in 30 months

Answer: (A)

The payback period shows how long it takes to recover the initial investment from net cash inflows. If the break-even point occurs in less than 34 months, that means the cumulative inflows have already covered the initial cost before reaching 34 months, so the investment is recovered within 34 months. The other options conflict with the given condition: it wouldn’t take more than 60 months, it isn’t never recovered, and while it could be exactly 30 months, the statement that holds true given the condition is that recovery happens within 34 months.

The payback period shows how long it takes to recover the initial investment from net cash inflows. If the break-even point occurs in less than 34 months, that means the cumulative inflows have already covered the initial cost before reaching 34 months, so the investment is recovered within 34 months. The other options conflict with the given condition: it wouldn’t take more than 60 months, it isn’t never recovered, and while it could be exactly 30 months, the statement that holds true given the condition is that recovery happens within 34 months.