What defines the payback period for an investment?

The payback period for an investment is defined as the time it takes for the cash flows generated by the investment to equal the initial cost of that investment. This measurement is crucial for assessing how quickly an investor can expect to recover their funds, making it an important metric in capital budgeting and investment analysis.

When evaluating investments, understanding the payback period helps investors gauge the risk and liquidity of the investment. A shorter payback period implies a quicker recovery, which can be particularly appealing when cash flow is a critical concern. By focusing on the cash flows that directly offset the initial investment, option B accurately captures the essence of the payback period measurement, differentiating it from other investment indicators related to time, return on investment, or evaluation of maturity.