alleryStart learning →The payback method's focus on recouping an investment makes it primarily a measure of:
AMarket share won
BTime to break even
CTotal profit earned
DTax liability due
Answer & Solution
Correct answer: B. Time to break even
1. Payback answers one narrow question.
2. The payback method considers the time frame to recoup an investment.
3. That time frame is based on expected annual cash flows.
4. It does not measure total profitability over the asset's life.
5. So it is primarily a measure of the time taken to break even.
_Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 11 'Capital Budgeting Decisions'_
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