ECONOMICS

Detailed explanation-1: -The payback period is the time required to earn back the amount invested in an asset from its net cash flows. It is a simple way to evaluate the risk associated with a proposed project.

Detailed explanation-2: -Payback period-even cash inflows If cash inflows from the project are even, then the payback period is calculated by taking the initial investment cost divided by the annual cash inflow.

Detailed explanation-3: -To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1, 00, 000 with an annual payback of Rs 20, 000. Payback Period = 1, 00, 000/20, 000 = 5 years.

Detailed explanation-4: -Payback is perhaps the simplest method of investment appraisal. The payback period is the time it takes for a project to repay its initial investment. Payback is used measured in terms of years and months, though any period could be used depending on the life of the project (e.g. weeks, months).