Payback Period
Time required to recover initial investment from cash flows.
Formula
Payback Period = Initial Investment ÷ Annual Net Cash Flow
Real World
Tesla investing £500m in a new Gigafactory might calculate a 5-year payback period — critical for deciding whether the project is worth pursuing given cash flow pressures.
Exam Focus
Show your working clearly and state the payback period in years/months; marks are lost for missing units or incomplete calculation steps.
How well did you know this?