payback method


Also found in: Financial, Encyclopedia.

payback method

a method of assessing the potential profitability of two or more competing strategies; based on the assessment of the period of time required before the financial returns from the strategy recoup the original investment.
References in periodicals archive ?
Early chapters cover financial decision making concepts, while later chapters are devoted to four methods: the payback method, the net present value method, the internal rate of return, and the profitability index method.
In the age of high computing power and easy-to-use spreadsheet software programs, a life cycle cost analysis accounting for these factors is recommended in lieu of a Simple Payback method.
The seminars will also examine allocating company resources according to a prioritised list of projects as well as identifying project evaluation and analysis techniques including the discounted payback method, internal rate of return, net present value and profitability index.
The DCF-based approaches are contrasted with the payback method and the accounting rate of return as methodologically deficient albeit still widely used decision rules.
Using the simple payback method, a little more than seven months was all the time needed to begin realizing the financial benefits of this investment.
8) It has precisely the strengths and shortcomings of the payback method albeit embellished as a percent per year rate of return concept.
However, many firms still used the payback method as a backup or secondary approach.
There are three commonly used methods of evaluating capital expenditures: the payback method (PB), the internal rate of return method (IRR), and the net present value approach (NPV).
If we use the traditional payback method without considering the time value of money, the payback period will be $2000/$17.
Most financial experts agree the most appropriate way to evaluate cost effectiveness is by using the net present value method rather than the internal rate of return or the payback method of analysis.
The accuracy of the simply payback method worsens as time periods become longer because the method does not take into account either the time value of money or the service life of the project.
The payback method is a widely used decision model.