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Payback period. Payback period in capital budgeting refers to the time required to recoup the funds expended in an investment, or to reach the break-even point. [1] For example, a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively would have a two-year payback period.
Discounted payback period. The discounted payback period (DPB) is the amount of time that it takes (in years) for the initial cost of a project to equal to the discounted value of expected cash flows, or the time it takes to break even from an investment. [1] It is the period in which the cumulative net present value of a project equals zero.
A simplified cash flow model shows the payback period as the time from the project completion to the breakeven. In economics and business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even".
Net present value. The net present value (NPV) or net present worth (NPW) [1] is a way of measuring the value of an asset that has cashflow by adding up the present value of all the future cash flows that asset will generate. The present value of a cash flow depends on the interval of time between now and the cash flow because of the Time value ...
In business and for engineering economics in both industrial engineering and civil engineering practice, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing ...
Cut off period. Cutoff period is a term in finance. In capital budgeting, it is the period (usually in years) below which a project's payback period must fall in order to accept the project. Generally it is the time period in which a project gives its investment back if a project fails to do so the project will be rejected. For example, a ...
Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization ...
Duration (finance) In finance, the duration of a financial asset that consists of fixed cash flows, such as a bond, is the weighted average of the times until those fixed cash flows are received. When the price of an asset is considered as a function of yield, duration also measures the price sensitivity to yield, the rate of change of price ...