An investment is recovered when the cumulative cash inflows equal the initial outlay.

An investment is recovered when the cumulative cash inflows equal the initial outlay.

• A. True
• B. False
• C. Sometimes
• D. Never

Answer: (A)

The idea here is payback—the point at which a project has returned the money originally invested. When you sum the cash inflows over time and they exactly equal the initial outlay, the original investment has been recovered. Any cash that comes in after that moment is essentially profit or return above and beyond recovering the cost. This describes undiscounted payback, which ignores the time value of money. If you were evaluating with discounted cash flows, you’d compare the present value of inflows to the initial outlay, and the break-even would occur where the net present value reaches zero. But in the straightforward, unadjusted sense, the statement is true: the investment is recovered when cumulative inflows equal the initial outlay.

The idea here is payback—the point at which a project has returned the money originally invested. When you sum the cash inflows over time and they exactly equal the initial outlay, the original investment has been recovered. Any cash that comes in after that moment is essentially profit or return above and beyond recovering the cost.

This describes undiscounted payback, which ignores the time value of money. If you were evaluating with discounted cash flows, you’d compare the present value of inflows to the initial outlay, and the break-even would occur where the net present value reaches zero. But in the straightforward, unadjusted sense, the statement is true: the investment is recovered when cumulative inflows equal the initial outlay.