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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.
To calculate a more exact payback period: payback period = amount to be invested / estimated annual net cash flow. The payback method also ignores the cash flows beyond the payback period; thus, it ignores the long-term profitability of a project.