payback period

(redirected from Repayment Periods)
Also found in: Medical, Encyclopedia, Wikipedia.

Payback period

In project evaluation and capital budgeting, the payback period estimates the time required to recover the principal amount of an investment.  Because the payback period method ignores any benefits that occur after the investment is repaid and the time value of money, other methods of investment analysis are often preferred. See: Internal rate of return (IRR), Discounted cash flow (DCF), and Net present value (NPV)

Payback Period

The time between the first payment on a loan and its maturity. For example, if one takes out a student loan with a payback period of 10 years, the full amount of the loan is due 10 years after the first payment, which occurs on an agreed-upon date. Over the course of the payback period, a borrower must either pay back the loan with his/her own funds or take out a different loan to pay off the first. It is also called the premium recovery period. See also: Refinancing.

payback period

1. The length of time needed for an investment's net cash receipts to cover completely the initial outlay expended in acquiring the investment.
2. The number of years the higher interest income from a convertible bond (compared with the dividend income from an equivalent investment in the underlying common stock) must persist to make up for the amount above conversion value paid for the convertible. Also called premium recovery period.

payback period

a criterion used in INVESTMENT APPRAISAL to evaluate the desirability of an INVESTMENT project. Payback calculations involve measuring the CASH FLOWS associated with a project and indicate how long it takes for an investment to generate sufficient cash to recover in full its original capital outlay. For example, if a machine costs £5,000 to purchase at the start of year 1, then generates net cash inflows from the sale of products made by the machine of £5,000 in year 1 and £3,000 in year 2 then it would recoup the initial cash outlay in the first year. If a firm's target payback period for new investment projects was, say, two years or less, then this particular project would be undertaken.

Whether or not the machine pays back its initial outlay in one year depends upon how accurate the future estimates of sales volumes, selling prices, materials costs etc. turn out to be. Since all investments involve assessments of future re-venues and costs they are all subject to a degree of uncertainty. This problem, in part, can be handled by undertaking sensitivity analysis, by making not one but three estimates for each item of project cost or revenue (‘optimistic’, ‘most likely’, ‘pessimistic’) to indicate the range of possible outcomes.

payback period

or

payback method

the period it takes for an INVESTMENT to generate sufficient cash to recover in full its original capital outlay. For example, a machine that cost £1,000 and generated a net cash inflow of £250 per year would have a payback period of four years. See also DISCOUNTED CASH FLOW, INVESTMENT APPRAISAL.

payback period

An estimate of the time that will be necessary for an investor to recoup the initial investment.It is used to compare investments that might have different initial capital requirements.

References in periodicals archive ?
5 per cent -- according to the borrower's own contribution -- repayment periods up to ten years, a 12-month grace period, and one or two creditworthy guarantors.
5 percent, the repayment period 5 years and the grace period one year for investment projects.
Graduates face a "triple whammy" of more debt, higher interest rates and longer repayment periods if proposals to raise tuition fees are adopted, according to a study
Lending banks have agreed to prolong repayment periods for loans issued to Seventh Continent's core owner, Alexander Zanadvorov, against collateral of the retail chain's securities.
With amounts of up to AED2m and extended repayment periods, we are confident that this programme will be very well received by the Emirati Society and will assist them in their growth and development both on a professional and personal level,' he said.
With amounts of up to Dh2 million and extended repayment periods, we are confident that this program will be very well received by the Emirati Society and will assist them in their growth and development both on a professional and personal level,' he added.
The Scottish Arts Council suggested the plan as they believe that small publishers are afraid of 'commercial' loans and should be offered loans at reduced rates over long repayment periods.
NORTHERN Rock has fixed-rate mortgages from 10 to 15 years - and repayment periods up to 35 years will also help cash-strapped purchasers.
House prices in the West Midlands are much more affordable and greatly increased repayment periods would only become an issue if interest rates began to rise significantly.
It offers secured loans from pounds 5,000 to pounds 60,000 with repayment periods of up to 25 years - to keep monthly repayments affordably low - and potential advances of up to 25 per cent more than the value of a customer's home less the outstanding first mortgage.
The loans include the ability to redraw overpayments, alter repayment periods and pay less by calculating interest daily.
The accord signed by German ambassador Reinhold Huber and Cuban Central Bank Vice-President Sergio Plasencia foresaw repayment periods of up to 21 years, but it gave no precise details.