Final answer:
The payback period is a financial measurement that calculates the time needed for an investment to recoup its original cost. Bubba would typically seek a short payback period for his investments. Calculating this period requires understanding the initial costs and the annual savings or returns from the investment. The correct option is A.
Step-by-step explanation:
The payback period is a financial metric used to evaluate the time it takes for an investment to generate enough cash flows to recover the original investment cost.
In the context of Bubba's investment decision, the ideal payback period would typically be "A. Short," meaning he would prefer to recover his investment in a shorter timeframe rather than a longer one.
This preference for a short payback period can be influenced by various factors including the liquidity needs of the investor, risk tolerance, and alternative investment opportunities.
As for the problem statements provided, calculating the payback period involves understanding the initial investment cost and the annual cost savings or returns generated by the investment.
For instance, if the insulation costs $4.00 per square meter and the energy savings amount to $1.00 per million joules, finding the simple payback time would require estimating how much energy (and therefore money) the extra insulation saves during the heating season, and then dividing the initial investment by these annual savings. The correct option is A.