The payback period measures the time required for an investment to recover its initial cost from the cash inflows generated by the project. It provides a simple and intuitive measure of risk, as shorter payback periods are generally preferred.

To calculate the payback period:

**Identify Cash Inflows and Outflows**: List all expected cash flows over the project's lifespan.**Calculate Cumulative Cash Flow**: Sum the cash inflows and outflows for each period to determine the cumulative cash flow.**Determine Payback Period**: Identify the period in which the cumulative cash flow equals or exceeds the initial investment.

The payback period is calculated as: