ABSTRACT
Payback period is the duration in which an investment pays for itself. Like the cashflow table, cashflow diagrams offer limited use in solving problems under payback criterion. The cut-off payback period for funding a project is usually set by the company management after considering various financial and marketing factors. When engineers are faced with the task of selecting one of the two alternatives based on payback-period criterion, the procedure involves evaluating the payback periods of both the alternatives and choosing the one whose payback period is shorter. As a criterion for economic decision-making, the payback period has its supporters and denouncers. The supporters boast about its simplicity, while the denouncers point out its non-consideration of the time value of money. The payback period method is suited for small investments by, and for, the operating departments. The payback period method is often used in industry, especially for analyzing projects requiring low capital.
