Break even time

Break even time is the amount of time required for the discounted cash flows generated by a project to equal its initial cost. For example, if it takes two years for a project to generate $1,000 on a discounted basis to offset its $1,000 startup cost, the project’s break even time is two years. A shorter time period indicates that a project has less risk of failure, and so would be a better investment. A possible risk when relying on this method is over-optimism in making aggressive cash flow predictions.

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Capital Budgeting