The payback is the time required to recover the initial investment cost. Expressed in years, evaluating investment opportunities and associated risks is a quick and straightforward method. A shorter payback period generally makes the investment more attractive. In practice, people often refer to the payback as the time it takes to "get our bait back" or recover the initial funds put into the project.

For example, suppose Sarah opens a restaurant with an initial investment of $50,000 and earns $5000 annually. In that case, the payback period is calculated by dividing $50,000 by $5,000, resulting in a payback period of 10 years. Similarly, businesses use the payback period to evaluate investments like purchasing equipment or launching new projects, especially when seeking a fast investment return.

However, the payback period has limitations, as it doesn't factor in the time value of money, potential earnings after the payback period, or the project's overall profitability.

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7.6 : Payback

Capital Budgeting

70 Vues

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7.1 : Introduction to Capital Budgeting

Capital Budgeting

156 Vues

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7.2 : Basics of Investment Decision-making

Capital Budgeting

102 Vues

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7.3 : Importance of Capital Budgeting

Capital Budgeting

72 Vues

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7.4 : Advantages and Limitations of Capital Budgeting

Capital Budgeting

219 Vues

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7.5 : Capital Budgeting Techniques

Capital Budgeting

118 Vues

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7.7 : Payback Period

Capital Budgeting

37 Vues

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7.8 : Discounted Payback Period

Capital Budgeting

53 Vues

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7.9 : Net Present Value

Capital Budgeting

112 Vues

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7.10 : Net Present Value Method

Capital Budgeting

123 Vues

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7.11 : Decision-making Through Net Present Value

Capital Budgeting

42 Vues

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7.12 : Internal Rate of Return

Capital Budgeting

27 Vues

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7.13 : Calculating Internal Rate of Return

Capital Budgeting

27 Vues

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7.14 : Decision-making Through Internal Rate of Return

Capital Budgeting

31 Vues

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7.15 : Average Rate of Return

Capital Budgeting

31 Vues

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