Payback Period and Average Rate of Return | Investment Appraisal

The payback period is the time required to earn back the amount invested in an asset from its net cash flows. It is a simple way to evaluate the risk associated with a proposed project. An investment with a shorter payback period is considered to be better, since the investor's initial outlay is at risk for a shorter period of time.
The average rate of return is the average annual amount of cash flow generated over the life of an investment. This rate is calculated by aggregating all expected cash flows and dividing by the number of years that the investment is expected to last.

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