The
Payback Period (PP) is perhaps the simplest method of looking at one or more investment projects or ideas.
The Payback Period method focuses on recovering the cost of investments. PP represents the amount of time that it takes for a capital budgeting project to recover its initial cost.
The Payback Period Calculation is as follows:
The Costs of Project / Investment
PP = ----------------------------------------
Annual Cash Inflows
The PP concept holds that all other things being equal, the better investment is the one with the shorter payback.
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