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- DictionaryPay·back pe·ri·od/ˈpāˌbak ˈpirēəd/
noun
- 1. the length of time required for an investment to recover its initial outlay in terms of profits or savings: "if insulation costs $110 and saves $55 a year, its payback period would be two years"
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Apr 18, 2016 · There are a variety of ways to calculate a return on investment (ROI) — net present value, internal rate of return, breakeven — but the simplest is payback period. Amy Gallo is a contributing ...
Payback period in capital budgeting refers to the time required to recoup the funds expended in an investment, or to reach the break-even point. [1] 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.
Payback Period = Initial Investment / Cash Flow per Year Payback Period Example. Assume Company XYZ invests $3 million in a project, which is expected to save them $400,000 each year. The payback period for this investment is 7 and a half years - which we calculate by dividing $3 million with $400,000, using the formula shown below:
Oct 17, 2023 · Payback period is a fundamental investment appraisal technique in corporate financial management. It is a measure of how long it takes for a company to recover its initial investment in a project. It is one of the simplest capital budgeting techniques and, for this reason, is commonly used to evaluate and compare capital projects.
Aug 3, 2023 · • The payback period is the estimated amount of time it will take to recoup an investment or to break even. • Generally, the longer the payback period, the higher the risk. • There are two formulas for calculating the payback period: the averaging method and the subtraction method.
Definition: Payback period, also called PBP, is the amount of time it takes for an investment’s cash flows to equal its initial cost. In other words, it’s the amount of time it takes for an investment to pay for itself. This is an important time-based measurement because it shows management how lucrative and risky an investment can be.
Mar 28, 2019 · The payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a break-even point. The desirability of an investment is directly related to its payback period.
