# payback period

Also found in: Dictionary, Thesaurus, Acronyms, 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.Â  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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

## 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.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

## 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.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
NOMENCLATURE A = Annual saving C = Cost of investment NPV = Net present value P = Energy SP = Saving from not building power plants SPR = Simple payback period SR = Saudi riyal (SR 3.75 = \$1) EF = Emission factor UR = Utility rate T = Annual operation hours REFERENCES
This is a cousin of the payback period. ROI is a measure of the return on the original investment, expressed as a percentage.
While larger arrays would have larger initial costs, economies of scale could decrease the payback period of a larger array.
Results of sensitivity analysis depict that NPV and COE is not much vulnerable to the reasonable variations in the economic parameters, except for two assumptions in sensitivity analyses, payback period is within the allowed range.
Thus, in Tables 12 and 13 we can see the results of the cost per kWh and payback period for the project applying the incentive of VAT exemption on the equipment.
Selecting a 5-year payback period, A B A-B Operating Cost, First Year (E) 200 100 100 [PW.sub.o.c.] 5-year period (5 x E) 1000 500 500 First Cost 2000 2300 (300) Owning Cost Index (FC + [PW.sub.o.c.]) 3000 2800 100 To determine the actual payback period
Installed in October 2011, the IsoFC is said to be on target to reduce cooling costs by over 25%, providing a payback period of just 2.5 years.
Rebets said that it is hard to speak of the construction period until the payback period and the economic benefit are estimated.
When asked what length of payback period would be acceptable when considering green features, 44 percent of executives said they would accept five years and almost 80 percent of executives said they would accept a payback period of five years or longer.
The analysis below begins with a review of the 2010 payback period for a solar investment in each of the four states and the reasons underlying the differences among the states.
The energy payback period for onshore and offshore wind turbines, including transmission, is around seven months.
VyYANA (CyHAN)- The payback period for Greece should be extended for two or three years if the country sticks to the savings targets and reform plans, Austrian Chancellor Werner Faymann said in an interview published on Sunday.

Site: Follow: Share:
Open / Close