MANAGEMENT

Detailed explanation-1: -The term payback period refers to 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 mainly invest their money to get paid back, which is why the payback period is so important.

Detailed explanation-2: -The payback period is the time you need to recover the cost of your investment. In simple terms, it is time an investment takes to reach the break-even point. It would help if you retrieved the investment costs of a project as soon as possible to make a profit.

Detailed explanation-3: -The payback method answers the question “how long will it take to recover my initial $50, 000 investment?” With annual cash inflows of $10, 000 starting in year 1, the payback period for this investment is 5 years (= $50, 000 initial investment ÷ $10, 000 annual cash receipts).

Detailed explanation-4: -To determine how to calculate payback period in practice, you simply divide the initial cash outlay of a project by the amount of net cash inflow that the project generates each year. For the purposes of calculating the payback period formula, you can assume that the net cash inflow is the same each year.