A measurement used in financial analysis to evaluate and choose between alternative investment opportunities. Specifically, the period of time it takes for projected savings or revenues from an initial outlay of funds to equal the amount of the outlay. Routinely applied to small investment decisions without regard to interest costs, differences in the expected lives of equipment or costs and savings beyond the payback period. For large projects, the payback period is a useful measure of risk: a project with a long payback period is more vulnerable to unforeseen events before the project has paid for itself.
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