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A startup has an initial investment of $50,000 and expects to generate $10,000 i

Practice Questions

Q1
A startup has an initial investment of $50,000 and expects to generate $10,000 in profit annually. What is the payback period?
  1. 2 years
  2. 3 years
  3. 4 years
  4. 5 years

Questions & Step-by-Step Solutions

A startup has an initial investment of $50,000 and expects to generate $10,000 in profit annually. What is the payback period?
  • Step 1: Identify the initial investment amount. In this case, it is $50,000.
  • Step 2: Identify the annual profit generated by the startup. Here, it is $10,000.
  • Step 3: Use the formula for payback period, which is: Payback Period = Initial Investment / Annual Profit.
  • Step 4: Plug in the numbers: Payback Period = $50,000 / $10,000.
  • Step 5: Calculate the result: $50,000 divided by $10,000 equals 5.
  • Step 6: Conclude that the payback period is 5 years.
  • Payback Period – The payback period is the time it takes for an investment to generate an amount of income equal to the initial investment.
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