This method states the period'during which the cash proceeds against the investment will equal to the original cash outlay. In other words, pay back period is the period during which cumulative cash inflows equal original cash outlay.
Pay back period can be found out by :
Investment
Pay Back Period = ---------------------------------
Cash inflow per annul
(when annual cash inflows are equal)
It is a popular method for finding the value of money to be returned in relation Lo time how the expenditure is to pay for itself. This is particularly useful for cash outlay, coming back in a shorter period of Lime. The pay back period method reflects the liquidity of a project laud thereby the risk or otherwise of recovering During the period of light money market, a quicker pay back period is preferable to a higher rale of return with blockage of Sundas over ii longer period of time. is that it gives attention to all receipts before recovery of the investment and a zero weight to those subsequent to this. It does not give a measure of rate of return but gives over-rigid inopportune to liquidity.
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