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You are trying to produce a solid budget for the next five years and are worried about some new projects that are just starting. You want to calculate how long it will take to break even from these projects. What are you looking​ at?

a) Net Present Value (NPV)
b) Internal Rate of Return (IRR)
c) Payback Period
d) Sensitivity Analysis

User QuadX
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Final answer:

The concept being considered for understanding the time required to recover the initial investment of new projects, in the context of budget planning, is the Payback Period. This financial measure calculates the time for an investment to repay its initial cost through cash flows or savings.

Step-by-step explanation:

When aiming to produce a solid budget and assessing the feasibility of new projects, particularly concerning how long it will take for those projects to generate enough savings to cover their initial costs, what you're looking at is the Payback Period. This is a financial measure that indicates the time it will take for an investment to repay its initial cost from its cash inflows. To calculate the simple payback time, you need to know the initial investment cost and the annual savings or cash inflows the project will generate.

In the case provided, if the cost of energy is $1.00 per million joules and the insulation costs $4.00 per square meter, you will need to determine how much energy (in million joules) the insulation will save over the 120-day heating season with an average temperature difference of 15.0°C. The cost savings from the reduced energy expenditure, calculated against the cost of installing the insulation, will give you the payback period

User Fareed Radzi
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