Which method is described as a simple, cash-based measure of ROI?

• A. Simple payback.
• B. Net present value.
• C. Internal rate of return.
• D. Break-even salary.

Answer: (A)

The idea being tested is to identify the simplest way to measure ROI using cash flows. The short, cash-based approach to ROI asks: how many years does it take to get back the money you invested from the project’s cash inflows? This is the payback period. It’s called simple because it uses only basic cash figures and a straightforward comparison—no discounting or future value calculations. You just see when the cumulative cash inflows equal the initial outlay, signaling the point at which the investment has been reimbursed.

This method is contrasted with more advanced metrics. Net present value and internal rate of return both require discounting future cash flows to account for the time value of money, which makes them more complex and not purely a simple cash-based measure. The term “break-even salary” isn’t a standard ROI concept and doesn’t describe recovering an initial investment from project cash inflows, so it isn’t a correct fit.