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Payback period

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What is the payback period method in accounting?

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Solution Summary

Payback period is discussed.

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Payback Period: The payback period is simply the time taken by the project to return the initial investment. The measure is very popular and is widely used; it is also a flawed and unreliable measure.

Calculation:
The cash flows from each year are added to find out the point in time at which the cumulative cash flows equal the initial investment.

Thus suppose the initial investment is $400 million. The cash flow in the years 1,2,3 and 4 are $15 million, $ 200 million , $ 250 million and $ 50 ...

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