The payback period is the period of time required to recover the cost of the investment, or the period of time required for the investor to reach the break-even point.
Shorter payback periods mean more attractive investments, while longer payback periods are less desirable.
The payback period is calculated by dividing the investment amount by the annual cash flow.
Account and fund managers use the payback period to determine whether an investment is worth making.
One of the disadvantages of the payback period is that it does not take into account the time value of money.