Calculate pay back period for a project which requires a cash outlay of Rs. 1,00,000 and generate cash inflows of Rs. 25,000, Rs. 35Calculate pay back period for a project which requires a cash outlay of Rs. 1,00,000 and generate cash inflows of Rs. 25,000, Rs. 35,000, Rs. 30,000 and Rs. 25,000 in the first, second, third and fourth year respectively.,000, Rs. 30,000 and Rs. 25,000 in the first, second, third and fourth year respectively.
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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. The payback period shows you the time taken to recover the cost of the project. The payback period helps you to evaluate the associated risks of an investment. An investment may have a short or a long payback period. If your investment has a short payback period, you may quickly recover the cost of the investment. You may select a project or an investment that has a short payback period. The payback period in capital budgeting gives the number of years it takes for you to recover the cost of the investment. For example, if it takes 10 years for you to recover the cost of the investment, then the payback period is 10 years. The payback period is an easy method to calculate the return on investment. However, it does not account for the time value of money. You may use the payback period concept along with other metrics to evaluate the return on investment.