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1. • • 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.
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     Payback period - Wikipedia

2. People also ask

   How long is the payback period for a project?

   • This is because, as we noted, the initial investment is recouped somewhere between periods 2 and 3. Applying the formula provides the following: As such, the payback period for this project is 2.33 years. The decision rule using the payback period is to minimize the time taken for the return on investment.

   Payback Period - Learn How to Use & Calculate the Payback Period

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   What if the payback period is less than the desired period?

   • If the calculated payback period is less than the desired period, this may be a safer investment. In simple terms, the payback period is calculated by dividing the cost of the investment by the annual cash flow until the cumulative cash flow is positive, which is the payback year. Payback period is generally expressed in years.

   How to Calculate the Payback Period: Formula & Examples

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   When is a payback period favored?

   • The payback period is favored when a company is under liquidity constraints because it can show how long it should take to recover the money laid out for the project. If short-term cash flows are a concern, a short payback period may be more attractive than a longer-term investment that has a higher NPV.

   Payback Period: Definition, Formula, and Calculation - Investopedia

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   How is a payback period calculated?

   • The payback period is calculated by dividing the amount of the investment by the annual cash flow. Account and fund managers use the payback period to determine whether to go through with an investment. One of the downsides of the payback period is that it disregards the time value of money.

   Payback Period: Definition, Formula, and Calculation - Investopedia

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   What is a payback period & why is it important?

   • Simply put, it is the length of time an investment reaches a breakeven point. People and corporations mainly invest their money to get paid back, which is why the payback period is so important. In essence, the shorter the payback an investment has, the more attractive it becomes.

   Payback Period: Definition, Formula, and Calculation - Investopedia

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   What is a payback period in capital budgeting?

   • It is the number of years it would take to get back the initial investment made for a project. Therefore, as a technique of capital budgeting, the payback period will be used to compare projects and derive the number of years it takes to get back the initial investment. The project with the least number of years usually is selected.

   Payback period - Meaning, Usage & Illustrations - ClearTax

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3. cleartax.in › s › payback-periodPayback period - Meaning, Usage & Illustrations - ClearTax

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   The payback period is the time required to recover the initial cost of an investment. It is the number of years it would take to get back the initial investment made for a project.

4. www.investopedia.com › terms › pPayback Period: Definition, Formula, and Calculation

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   Jul 30, 2024 · The payback period is the amount of time it takes to recover the cost of an investment. Simply put, it is the length of time an investment reaches a breakeven point. People and corporations...

   • Author: Julia Kagan

   • Video Duration: 2 min

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6. www.accountingformanagement.org › payback-methodPayback method - formula, example, explanation, advantages ...

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   Apr 9, 2024 · Under payback method, an investment project is accepted or rejected on the basis of payback period. Payback period means the period of time that a project requires to recover the money invested in it.

   • When net annual cash inflow is even (i.e., same cash flow every period), the payback period of the project can be computed by applying the simple f...
   • The Delta company is planning to purchase a machine known as machine X. Machine X would cost $25,000 and would have a useful life of 10 years with...
   • Due to increased demand, the management of Rani Beverage Company is considering to purchase a new equipment to increase the production and revenues...
   • Where funds are limited and several alternative projects are being considered, the project with the shortest payback period is preferred. It is exp...
   • In the above examples we have assumed that the projects generate even cash inflow but many projects usually generate uneven cash flow. When project...

7. corporatefinanceinstitute.com › payback-periodPayback Period - Learn How to Use & Calculate the Payback Period

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   What is the payback period? As seen from the graph below, the initial investment is fully offset by positive cash flows somewhere between periods 2 and 3. Payback Period Formula. To find exactly when payback occurs, the following formula can be used: Applying the formula to the example, we take the initial investment at its absolute value.

8. www.sofi.com › how-to-calculate-the-payback-periodPayback Period: Formula and Calculation Examples - SoFi

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   Sep 10, 2024 · The payback period refers to how long it will take to recoup the cost of an investment. Learn how to calculate payback period, and when and why to use it.

   • Author: Laurel Tincher

9. www.wallstreetprep.com › knowledge › payback-periodPayback Period | Formula + Calculator - Wall Street Prep

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   Feb 5, 2024 · The payback period is a fundamental capital budgeting tool in corporate finance, and perhaps the simplest method for evaluating the feasibility of undertaking a potential investment or project.

10. en.wikipedia.org › wiki › Payback_periodPayback period - Wikipedia

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    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