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Payback period

The time taken for a project to repay its initial investment.

Benifits of payback period

-Simple and easy to calculate


-focuses on cash flow


-emphasises speed of return; good for markets which change rapidly.


-straightforward to compare with similar projects.

Limitations of payback period

-Ignores cash flow after payback has been reached.


-Takes no account of the time value of money.


-May encourage short term thinking


-Qualitative factors ignored.

Net present value(NPV)

X