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Payback period = initial investment / annual cash inflow (for equal cash flows). For uneven flows, cumulate cash flows until the initial outlay is recovered. Shorter payback is preferred for liquidity and risk reduction. Limitation: ignores time value of money and cash flows after payback. Discounted payback period uses present-valued cash flows to address the first limitation. NPV and IRR are more comprehensive.
How long until savings or revenue recover an upfront cost (simple payback, not discounted).
Simple payback
35 months
≈ 34.3 months ($12,000 ÷ $350/mo)