Payback period

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payback period

[′pā‚bak ‚pir·ē·əd]
(industrial engineering)
The amount of time required for achieving an amount in profits to offset the cost of a capital expenditure, such as the cost of investment in modifications in an industrial facility for the purpose of conserving energy.

Payback period

A popular nondiscounting project selection technique used when organizations require the capital investment of a project to be recovered within a specified period; the period it takes for the stream of net cash flows to equal the initial investment. Also, a term used in the evaluation of sustainable and renewable energy options, wherein greenhouse or greenhouse intensive energy savings that the technology may enable over its useful life are assessed in relation to the embodied energy required for its manufacture. For renewable energy systems, it can also refer to the period of time over which energy cost savings derived from accessing renewable energy offset the upfront capital costs of the system.
References in periodicals archive ?
While the former are students mastering concepts like shapes and letters, iPads and algebra, and the payback method, respectively, working professionals are already adept at learning from their environment, network, and stakeholders, to name a few, and are automatically applying this knowledge to their career or personal lives.
The simple payback is mathematically defined by relating the capital invested to the annual returns as; the basic premise of the simple payback method is that the more quickly the cost of an investment can be recovered, the more desirable is the investment.
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.
Most engineers are familiar with simple payback method (projected savings divided by expenditure), but this is a crude measure--it underestimates the energy savings over the lifetime of the project, does not often sell the overall benefits effectively.
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.
(8) It has precisely the strengths and shortcomings of the payback method albeit embellished as a percent per year rate of return concept.
It is no wonder that some managers are moving away from so-called sophisticated appraisal techniques and returning to the safe haven of the payback method -- which is at least simple to understand and to calculate.
However, many firms still used the payback method as a backup or secondary approach.