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Chapter 12. Examining Decision Criteria ... > Understanding Payback Periods

Understanding Payback Periods

The payback period is the length of time between an initial investment and the recovery of the investment from its annual cash flow. Suppose, for example, that you purchase a store for $500,000. Taking into account the income from the store, your expenses and depreciation, and your taxes, it takes you 48 months to earn back the $500,000. The payback period for your investment is 48 months.

Figures 12.1 and 12.2 show the full cash flow statement from the case study presented in the previous chapter, including the discounting, payback, and other numbers you'll learn about in this chapter.


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