Payback Period

Payback Period. Payback period is usually expressed in years. It is based on the incremental cash flows from a particular investment project.

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This means that it will not evaluate the project based on present value of money but on the basis of the actual investment made. The payback period helps us to calculate the time taken to recover the initial cost of investment without considering the time value of money. Payback period is the time required to recover the cost of total investment meant into a business.

The Payback Period is the amount of time it will take an investment to generate enough cash flow to pay back the full amount of the investment.

In other words its the amount of time it takes for an investment to pay for itself. It helps a company to determine whether to invest in a project or not. Payback period is usually expressed in years. 3 Helps in Reducing the Risk Of losses.