Which of the following is a formula for calculating payback time?

The formula for calculating payback time is based on determining the time it takes for an investment to generate enough cash inflows to recover its initial cash outflow. The correct formula is cash outflow divided by annual cash inflow.

When you take the cash outflow, which represents the initial investment amount, and divide it by the annual cash inflow, you effectively quantify how many years it will take for the investment to pay back the initial cost. So, if an investment costs $100,000 and generates $25,000 annually, the payback period would be 4 years, as $100,000 divided by $25,000 equals 4.

In contrast, other formulas do not reflect this calculation of determining payback time accurately. For example, the first choice looks at the ratio of annual cash inflow to cash outflow, which does not yield the payback period but rather a rate that does not provide a straightforward answer to how long until recovery. The second choice involves cash outflow and contribution margin, which would not relate to the specific time frame for recovering the initial investment. Lastly, the option with total costs and total revenues would provide insight related to profitability and not specifically to payback period calculations. Thus, the choice