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The period required for a project’s profit/benefits to equal the investment is called:ans.

Question

The period required for a project’s profit/benefits to equal the investment is called:

ans.

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Solution

The period required for a project's profit or benefits to equal the initial investment is referred to as the Payback Period. This metric is crucial in capital budgeting and investment analysis since it helps determine how long it will take for an investment to repay its original cost through generated cash flows.

In investment decisions, a shorter payback period is generally preferred as it implies a quicker recovery of the initial investment, reducing risk. Organizations often use this measure alongside other metrics like net present value (NPV) and internal rate of return (IRR) when evaluating potential projects, ensuring a comprehensive analysis of expected financial performance.

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