Payback Period Method
Measuring Investment Recovery Time
The payback period measures how long it takes for an investment to recover its initial cost from future cash inflows. It is simple to calculate and widely used for preliminary project screening.
- Easy to understand.
- Emphasizes liquidity.
- Useful for high-risk projects.
- Ignores cash flows after payback.
Summary
The shorter the payback period, the faster the investment recovers its initial cost.