11–24. (payback period, net present value, profitability index, and
The payback period of a project is the amount of time it will take for initial investments to be recovered through cash flows generated by said project. In this case, the payback period would be four years since it takes four years ($80,000 / $20,000) to recover the initial investment.
The discounted payback period takes into account the time value of money by discounting future cash flows at a given rate to determine their present value. For this project, using a 10% discount rate we can calculate that the discounted payback period is 3.81 years ($80,000/($20,000 x 1.10^4)). This means that when discounted for time value it only takes 3.81 years for all investments in this project to be fully recovered.
Using both these metrics allows investors and other stakeholders to assess how long it will take for an organization’s capital invested in a particular project or venture to return its original cost as well as any additional costs associated with inflation or opportunity costs over a specific timeframe from start-up until completion/termination which provides them with valuable information they can utilize while making decisions related to potential investments