When is the payback period considered complete?

The payback period is the time required for an investment to generate enough cash flows to recover its initial cost. It is considered complete when cumulative cash flows turn positive, indicating that the total cash inflows from the investment have exceeded the initial cash outlays. This point signifies that the investment has not only recouped its initial cost but has also started to generate a profit.

Understanding this timeline is critical for investors and financial analysts as it helps in assessing the liquidity aspect of an investment and aids in decision-making regarding project feasibility. When the cumulative cash flows are positive, it demonstrates that the investment is effectively yielding returns beyond the point of recovery, making it a pivotal milestone in investment analysis. Other choices do not represent the definitive point at which the payback period is achieved, as they either suggest negative outcomes or focus solely on revenue rather than the net flow of cash.