The payback period is often compared to an asset's
A) estimated useful life.
B) warranty period.
C) net present value.
D) internal rate of return.

Question

Quizplus · Accepted Answer

The payback period measures the length of time it takes for an investment to generate enough cash flows to recover its initial cost. It is commonly compared to the estimated useful life of the asset to determine whether the investment will provide a reasonable return before the asset becomes obsolete or requires replacement. Comparing the payback period to the warranty period or net present value is not as relevant to the decision-making process. The internal rate of return is a more comprehensive measure of an investment's return but does not provide insight into when the initial cost will be recovered.

The Payback Period Is Often Compared to an Asset's