Difference between revisions of "Pay back period"
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(Created page with "The length of time required to recover the cost of an investment. Calculated as '''Pay back period''' = <math>\frac{Cost of Project}{Annual Cash Inflows}</math> Using the fo...") |
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Latest revision as of 19:25, 27 August 2020
The length of time required to recover the cost of an investment. Calculated as
Pay back period =
Using the following example:
| Project | \[C_0\] | \[C_1\] | \[C_2\] | \[C_3\] | Payback | NPV at 10% |
|---|---|---|---|---|---|---|
| A | ||||||
| 500 | 500 | 5000 | 3 | |||
| B | ||||||
| 500 | 1800 | 0 | 2 | |||
| C | ||||||
| 1800 | 500 | 0 | 2 |
- The payback rule ignores all cash flows after the cut off date.
- The payback rule gives equal weight to all cash flows before the cutoff date.
