Payback Period Calculator
📘 What is Payback Period?
Payback Period refers to the time it takes for an investment to generate an amount of income or cash equal to the cost of the investment. This period helps investors understand how long it will take to recover the initial investment.
🧠 Formula Used
Payback Period Formula:
Payback Period = Initial Investment / Annual Cash Inflows
📈 Why is Payback Period Important?
- Helps assess the risk associated with an investment based on its recovery time.
- Shorter payback periods are typically more desirable in industries with fast-changing technologies.
- Provides a simple metric for comparing projects or investments.
💡 When to Use
- For investments with uncertain or risky cash flows.
- To compare projects with similar costs but different durations.
- In industries where liquidity is critical or short-term returns are prioritized.