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Pay Back Period (PBP) :

This is the most popular method employed by industrial practitioners for ranking investment projects. This is described as the "period required for a proposal's initial cash outlay to be recovered by future additional cash savings generated from the proposal". The cash flow (after tax & depreciation) is used in calculating the payback period.

PBP = CO/CF

Where CO = cash outflow of the project and CF = cash inflow

When the cash gains produced by the project are unevenly distributed, cumulative cash gains resulting from the project are to be calculated until the year in which the running total is similar to the amount of investment outlay.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9511702

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