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What is Pay back period method?

Updated: 9/17/2023
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11y ago

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Method of evaluating investment opportunities and product development projects on the basis of the time taken to recoup the investment. This period is compared to the required payback period to determine the acceptability of the investment proposal. In contrast to return on investment and net present value methods, the cash inflows occurring after the payback period are not included in this method. Formula: Payback period (in years) = Initial capital investment ÷ Annual cash-flow from the investment.

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Q: What is Pay back period method?
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What is pay back period method of evaluating capital expenditure?

Payback period method evaluates any investing activity from how much money it will pay back and how much time it requires to payback in number of years.


What is different between Discounted pay back period vs pay back period?

The difference between a discounted pay back period and a pay back period is the amount of money that needs to be paid. During a discounted pay back period a creditor might settle for a lesser amount of money if the debt is paid in full at the discount by a certain date. A pay back period will mean additional funds to be paid including interest.


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Advantages of payback method as an investment appraisal?

Given that it is the true time taken for the cash inflows from a capital investment to equal the cash outlay cost...it provides a good picture of whether or not the business is able to recover its original investment outlay. An example: Assume a project has an outlay cost of $10 000 to be followed by annual net cash inflows of $2 500. In this e.g. the payback period will be 4 years. Because in that time the net cash inflows will accumulate to an amount equal to the outlay cost of $10 000. ....................................................... Pay back method is simplest method of investment appraisal. Its easy to use and understund by managers. Pay back method is very useful in short term period. Pay Bac is useful if the returns are accurate, and useful where technology changes rapidly. Often used in company with cash flow problems - since money will be recovered as quick as possible. Pay back period could occur during a year.


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Can you start birth control before your next period starts?

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do i have to pay back?

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What is a payback period?

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