Business – 10.3 Investment appraisal – Payback and ARR | e-Consult
10.3 Investment appraisal – Payback and ARR (1 questions)
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The payback period is the length of time required for an investment’s cumulative cash inflows to equal the initial outlay. Its purpose is to give managers a simple measure of how quickly the capital invested can be recovered, indicating the liquidity risk of the project. The key information provided includes:
- The speed of cash recovery, helping assess short‑term risk.
- A rough indication of project viability when capital is scarce.
- Ease of calculation and communication to non‑financial stakeholders.
However, it does not consider cash flows after the payback point or the time value of money.