Payback period in capital budgeting refers to the period of time required to recoup or recover the funds invested in an investment, or to reach the break-even point.
In the given case:
Initial investment = (1000)
Payback Period = 2 Years ( -1000 + 600 + 400)
Payback period is defined as the number of years required to get better the original coins investment. In different phrases, it's miles the time period on the quit of which a device, facility, or other investment has produced enough internet sales to recover its funding fees.
In easy terms, the payback period is calculated through dividing the price of the investment by means of the yearly coins float till the cumulative cash glide is advantageous, which is the payback year.
The Payback period suggests how long it takes for a commercial enterprise to recoup an investment. This sort of analysis lets in companies to compare alternative investment opportunities and determine on a challenge that returns its investment inside the shortest time if that criteria is important to them.
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