Payoff period

The payback period is the time required for the annual earnings to equal the original investment. Payback period is also called payout time, payout period, payoff period, and cash recovery period. Because it is simple and even more understandable than ROI, PBP is widely used in early evaluations to compare alternatives. Like ROI, the payback period in years has several definitions, but the following is used here. This definition is not consistent with the definition of ROI in Eq. (17.7), because only the depreciable capital is used and the annual depreciation, D, is added back to the net earnings because that depreciation is retained by file company. 

The most common methods of determining the profitability of materials-handhng investment are payoff period, return on investment (ROI), and discounted cash flow. 

The payoff-period method indicates the amount of time that new equipment or a system will take to prodnce the savings to recover the capital investment. The investment is divided by the annnal savings to give the time (in years) needed to break even. In Table 4.1 ... 

This method is a good risk indicator and measure which can be nseful to indicate the projects that would be worth considering for closer study, but the actual profitability of new equipment depends on how mnch useful life is left after the payoff period. Some caution is therefore advised if the payoff period is to be the sole determinant for equipment justification, because cheaper equipment having a low useful life will always appear to be the best investment opportunity. 

Time Criterion. The term used for this criterion is the payback period (PBP), also known by a variety of other names, such as payout period, payoff period, and cash recovery period. The payback period is defined as follows ... 

Pattern search techniques, parametric optimization, 496-497 Payoff period, 300 Payout period, 300... 

Proprietary research is carried out only by individuals and firms in an oligopoly, with the aim of developing more desirable products and more efficient processes. The results are protected by trade secrets and patents. In a monopolistic market, proprietary research need not be done, and in an atomistic competition, companies cannot afford it. Proprietary research has been responsible for most of the technical innovations that have enriched and improved our standard of living. Examples are nylons and polyesters for fibers and catalysts for cracking hydrocarbons. This type of research is expensive, and the payoffs are uncertain. Adequate rewards must be probable before such research will be undertaken, and the firm must be able to recover the research cost by exploitation of the market for a limited time period. 

First, accounting profits are poor measures of true IRRs. Revenues and costs recognized in accounting statements don t correspond very well to actual cash flows. And, because profits are computed over a limited period, they don t adjust properly for the time profile of cash flows from various investments made in previous times or for payoffs that won t occur until after the profit measurement period. 

Accounting standards require firms to record as current expenditures all outlays for R D, advertising, and promotion when in reality these expenditures are investments whose payoffs may be delayed or extended into future accounting periods. The value of the intangible assets produced by these investments is too uncertain for use in accounting statements. Thus, the book value of assets in a company s financial statement underestimates the true value of assets, especially when these investments are important components of the company s activities, as in the pharmaceutical industry (62,78,80). 

To keep matters simple, restrict the focus to two time periods. (Since next period s payoff could represent the then present expected value of all subsequent payoffs, the problem is not qualitatively altered.) For labor s retaliation to be individually rational, the following condition must hold ... 

The second methodology uses market data on actively traded interest rate caps to form an estimate of a and O. An interest rate cap comprises q caplets, where q is the number of reset dates. Each caplet corresponds to the rate at time and provides payoff at time An interest rate cap provides insurance against adverse upward movements in floating-rate obligations during a future period. An interest rate caplet provides the cap holder with the following payoff ... 

The incentive compatibility constraints (4.29)-(4.30) state that the pair (a, a ) is a Nash equilibrium for the single-period game in which each agent receives a terminal payoff equal to his reservation utility at the end of the period. 

To explore the effect of information asymmetry on service level, we can compare the second-best service intensity a, which is optimal when the agent s actions are not observable, to the first-best intensity, that maximizes the principal s objective when the agent s actions are observable the first-best service strategy delivers the same service level, the so-called first-best level, in each period and state. The first-best service level is obtained by maximizing the principal s payoff per customer when the cost of service is the actual cost g a) and not the induced cost J [s a) ph cl)s a) PD (i)s a)] used... 

It would take a brave and foolish person to predict the future, especially in scientific matters particularly, since the payoff is much better at the race track or the lottery. However, I shall do my best not to let the prejudice of e q>erience cloud my thinking too much, but shall assume that civilization continues in somewhat similar fashion for the time period that those in attendance here will still be aware of it. 

Thus, building the onshore plant has an expected payoff of 6,429,091 over the evaluation period. This number accounts for uncertainties in demand and exchange rates and the ability of the onshore facility to react to these fluctuations. 

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