Payback Period
The payback period is the length of time, usually expressed in years, required to recover the initial outlay in the project. It measures how long will it takes to earn back the money that spent in the project.The basic premise of payback period is the projects with shorter paybacks are more liquid and lessrisky which allow the board of directors to recoup their investment sooner, so that they can reinvest themoney elsewhere.Many firms use the payback period as an investment evaluation criterion and method of ranking
projects. They compare the project’s payback period with a predetermined payback period. The project would be accepted if the payback period is less than or equal to the firm’s maximum desired payback
period.