The PB method measures how long it takes to recover investment costs. Benefits or savings, net of future costs, are accumulated year by year until the total is sufficient to offset investment costs. If, in computing the payback period, you ignore the time value of money (i.e., assume a zero discount rate), the method is called “simple payback (SPB).” If you take into account the time value of money (i.e., assume a positive discount rate), the method is called “discounted payback (DPB).” DPB is a more accurate measure of payback than SPB.
KeywordsDiscount Rate Cash Flow Investment Cost Payback Period Project Life
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