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The payback method is a simple way to evaluate the number of years or months it takes to return the initial investment. The payback period is usually expressed in years. Start by calculating net cash flow for each year: net cash flow year one = cash inflow year one - cash outflow year one.
The payback method does not take into account the time value of money. It does not consider the useful life of the assets and inflow of cash after payback period. For example, If two projects, project A and project B require an initial investment of $5,000.