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The payback period is the time required for an investment to generate enough cash flow to recover its initial cost. It is the simplest capital budgeting metric — shorter is generally better, though it ignores the time value of money.

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1. 1Identify the initial investment amount
2. 2Estimate the annual (or periodic) cash inflows the investment generates
3. 3Simple payback = Initial investment / Annual cash inflow
4. 4For uneven cash flows, cumulate inflows year by year until the investment is recovered

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