in capital budgeting the payback period is the selection criteria or deciding factor that most businesses rely on to choose among potential capital projects. small businesses and large alike tend to focus on projects with a likelihood of faster more profitable payback. analysts consider project cash flows initial investment and other factors to calculate a capital project's payback period.
when people ask about the payback period their intended question is "when will i get my money back" in order to answer this question the payback period must deal with cash flows — e.g. invest € 100 today receive € 20 in year 1 € 30 in year 2 and € 50 in year 3 and the payback period is equal to three years.
payback period: the payback period is the length of time required to recover the cost of an investment. the payback period of a given investment or project is an important determinant of whether
payback period in capital budgeting refers to the period of time required to recoup the funds expended in an investment or to reach the break-even point. for example a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively would have a two-year payback period.
the payback period is the time required to earn back the amount invested in an asset from its net cash flows . it is a simple way to evaluate the risk associated with a proposed project. an investment with a shorter payback period is considered to be better since the investor's initial outla