Payback PeriodKnowledge Center 
Recovering the costs of investments. Explanation of Payback Period (PP). 
What is the Payback Period? DescriptionThe Payback Period is perhaps the simplest method of looking at one or
more investment projects or ideas. The Payback Period method focuses on recovering
the cost of investments. The Payback Period represents the amount of time
that it takes for a capital budgeting project to recover its initial cost. Calculation of Payback Period. FormulaCalculating the Payback Period can be done in the following way: The Costs of Project / Investment PP =  Annual Cash Inflows The Payback Period concept holds that all other things being equal, the better investment is the one with the shorter payback period. Example of Payback Period calculationFor example, take a project costing a total of $200,000. The expected returns
of the project amount to $40,000 annually. The Payback Period would be $200,000
: $40,000 = 5 years. Benefits of Payback PeriodThe Payback Period certainly has the virtue of being easy to compute and easy to understand. But that simplicity carries weaknesses with it. Limitations of the Payback PeriodThere are at least two major problems associated with the Payback Period
model:
Compare with Payback Period: Net Present Value  Internal Rate of Return  Discounted Cash Flow Return to Management Hub: Decisionmaking & Valuation  Finance & Investing 

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