By Power Hedge:
One important financial concept is the payback period. The payback period is defined as "the length of time needed to recover the cost of an investment." In other words, the payback period tells you how long it will take for the cash flows from an asset to total the cost; this metric tells us how long it takes for an asset to pay for itself. Investopedia offers further insights:
All other things being equal, the better investment is one with a shorter payback period.
For example, if a project costs $100,000 and is expected to return $20,000 annually, the payback period will be $100,000/$20,000, or five years.
There are two main problems with the payback period
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