payback period

1. A period of time over which the costs of an investment are recouped by cash flows the investment generates. To take a simple example, a $12,500 investment that is expected to result in annual, net cash inflows of $5,000 has a payback period of 2.5 years. In practice, payback calculations are complicated by uncertainty over cash flows and the effects of the *time value of money. The latter issue is usually addressed by *discounting future cash flows to their *present values. 2. A period of time over which a loan should be reimbursed.

Auditor's dictionary. 2014.

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  • payback period — / peɪbæk ˌpɪəriəd/ noun 1. a period of time over which a loan is to be repaid or an investment is to pay for itself 2. the length of time it will take to earn back the money invested in a project …   Dictionary of banking and finance

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  • payback period method — A method of capital budgeting in which the time required before the projected cash inflows for a project equal the investment expenditure is calculated; this time is compared to a required payback period to determine whether or not the project… …   Accounting dictionary

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