Question

What is the payback method of analyzing capital investments?

Short answer

The payback method computes the time it takes to recoup the cost of the initial investment in net cash inflows.

Step-by-step solution

Meaning of Capital Investment

Capital investment is a sum of money used to help a firm achieve its goals or purchase long-term resources. In a business setting, the term "capital investment" is used in two different ways. The first concerns funds allocated to assist the organization in achieving its objectives. The second category includes cash spent on acquiring fixed assets for the company rather than funds utilized for day-to-day operations.

Explaining the payback method of analyzing capital investments

The payback strategy may be a capital investment examination approach that decides how long it takes to reimburse the cost of the initial investment in net cash inflows. The payback period is the time it takes for a trade to recoup its initial investment. The project with the shortest payback period is the most appealing. The loan with the shortest payback time is the most appealing.