Payback Period
Payback periods are the simplest way to budget for new projects. It indicates how long it will take for your project to generate enough inflows to cover your investment. A shorter payback period makes a project more appealing because it means that your investment costs can be recovered in a shorter period of time. Those who have a limited amount of funds to invest in a project and need to recover their initial investment before starting another are often drawn to the payback period method.It is very popular for evaluating capital expenditure projects because it is simple to calculate and understand. While it has some limitations, it ignores many important factors that should be considered when evaluating the economic feasibility of a project.
Payback Period Formula,
Payback Period = Initial investment / Cash flow per year
Payback period method is a method used by businesses to determine how much cash flow will come in from different projects, and which one will have the quickest return on investment.