Palgrave Macmillan: Companion website for Collis - Business Accounting: Chapter 20

You would use the payback period when:
1. the profitability of the project must be taken into account
2. the time taken to recover the investment must be taken into account
3. the full life of the project must be taken into account
4. the capital employed must be taken into account
The payback period is an estimate of the time it will take for:
1. the capital invested to be recovered
2. the initial cash outflow to equal the initial cash inflows
3. the cumulative net cash flow to equal zero
4. all of these
If the initial capital required for an investment project is £50,000 and positive net cash flows of £10,000 per annum are expected for the next 10 years, the payback period is:
1. 4 years
2. 5 years
3. 6 years
4. 10 years
If the initial capital required for an investment project is £25,000 and positive net cash flows of £10,000 per annum are expected for the next three years, the payback period is:
1. 2 years
2. 2.25 years
3. 2.5 years
4. 3 years
If the average capital employed in an investment project is £50,000 and the average profit is £8,500, the ARR is:
1. 17%
2. 19.33%
3. 51%
4. 58%
If the expected profit from an investment project is £4,000 in year 1, £5,000 in year 2, £6,000 in year 3 and £7,600 in year 4, and the capital employed is £10,000 in year 0 and £20,000 in year 1, the ARR is:
1. 15%
2. 22.5%
3. 38%
4. 45%

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