By ignoring time value, the payback period rule may incorrectly accept projects with a negative NPV.
What connection exists between NPV and payback period?
While payback technique refers to the amount of time needed for the return on an investment to cover the entire initial investment, NPV (Net Present Value) is computed in terms of currency.
Payback, NPV, and numerous more metrics are examples of ways to assess the worth of a project. The payback period is calculated by counting the number of years it takes to recoup the money invested, disregarding the time value of money.
Therefore, The payback period, for instance, is five years if it takes five years to recoup the cost of an investment. What happened following repayment does not fall under this era.
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