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Understanding Payback Period Quiz

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1. What does the Payback Period concept do in capital budgeting?

2. Why might a company prefer a project with a shorter Payback Period?

3. What's a major limitation of the Payback Period method?

4. If the total initial investment of a project is $150,000 and it generates annual cash inflow of $50,000, what will be its Payback Period?

5. How does the Payback Period account for the risk of future cash flows?

6. Which statement is true regarding the usage of the Payback Period?

7. When comparing two investment opportunities, why might a business choose an investment with a longer Payback Period?

8. Is the Payback Period a good measure of an investment's profitability?

9. Which of the following is considered while calculating the Payback Period?

10. How would a decrease in cash inflows affect the Payback Period?