Payback Period

The payback period is a measure of the time it will take for an investment to recover its initial cost. It is commonly used to evaluate the feasibility of a proposed project or investment. The payback period is calculated by dividing the initial cost of the investment by the expected annual cash flow or savings that the investment will generate.

For example, if an investment costs $100,000 and is expected to generate $20,000 in annual savings, the payback period would be 5 years ($100,000 / $20,000 = 5).