The concept of the project payback period

[mehadihasan12345]

In economics, the payback period is the period required to return the investor's invested funds. Obviously, any entrepreneur is interested in this indicator being minimal, so that there would be an opportunity to find a new use for the capital. The concept of "break-even point" has a similar meaning - this is how the moment in the implementation of a commercial project is designated when the profit received reaches the level of initial costs.

The figure shows what a project payback graph might look like. The horizontal axis shows time periods, and the vertical axis shows financial results, in this case marked as NPV – net present value. Accordingly mexico phone lookup at first the project requires investments, and the curve goes down, and when it reaches zero at the growth stage, we can talk about the completion of the project's investment payback period.



Project payback period

In the example shown, the first year involves costs estimated at around 3,000 conventional monetary units, then over the course of two years they are gradually returned, and at the beginning of the fourth year the project reaches the breakeven point, after which it produces a net profit.

Any business plan necessarily includes payback calculations, and for investors, this is a key criterion for assessing the attractiveness of a project. For example, it is proposed to invest in a business enterprise under the following conditions: the contribution will be 20 million rubles, it is assumed that the annual profit will be 5 million, then the payback period is 4 years.