ABSTRACT
The cut-off period is perhaps the crudest possible criterion that is used in business in order to decide whether or not to invest in a project. A suitable period is chosen over which the money invested must be fully recouped. The period could be ten years, though usually a shorter period such as five years or even less is chosen. Such a criterion may be justified in cases of low barriers to entry, innovation in products or methods that cannot be protected by patent, and which innovations are likely to be copied by competing firms within two or three years. Although all investment criteria resort to common procedure of reducing a stream of net benefits to a single figure at one point in time, usually present time, the economist invariably uses some rate of interest (or some combination of rates) as a means of weighting the net benefits in successive years.
