Final answer:
The payback period is a concept used in business to calculate the time it will take to recover the cost of an investment through generated cash flow. It helps businesses assess the risk and profitability of different projects.
Step-by-step explanation:
The subject of this question is Business. The payback period is a concept used in business to calculate the time it will take to recover the cost of an investment through generated cash flow. It is an important factor in decision making and evaluating the profitability of investments.
The payback period can be calculated by dividing the cost of the equipment by the annual cash flow generated by it. For example, if the cost of the equipment is $10,000 and it generates an annual cash flow of $2,000, the payback period would be 5 years.
Businesses often use the payback period to determine the feasibility of investments and make informed financial decisions. It helps them assess the risk and profitability of different projects and choose the ones that offer quicker returns.