Pay back period

The length of time required to recover the cost of an investment. Calculated as

Pay back period = ${\frac {CostofProject}{AnnualCashInflows}}$

Using the following example:

2624

50

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

1. The payback rule ignores all cash flows after the cut off date.
2. The payback rule gives equal weight to all cash flows before the cutoff date.