Number of years (including fractions) that it takes the nominal cash inflows equal to the original investment in a project. Payback period is a good measure for project liquidity but ignore time value of money & terminal value.
PP = full years before full recovery + unrecovered amount at the beginning of the last year/cash flow in the year
For constant cash flow
PP = project cost/ annual cash flow
Rules: If payback period is smaller than benchmark, accept; otherwise, reject.
Drawbacks: not consider the cash flow beyoung payback period and the time value of money.
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