The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Pay-off Period

  • D. M. Nuti
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1827

Abstract

The pay-off period of an investment project is the number of years over which the project pays for itself from the time of completion, i.e. the sum of undiscounted after-tax gross profits over the period are equal to total investment outlays. There is evidence that enterprises investing in plant and equipment, mostly in industry, require for a project to be undertaken that its pay-off period should be no longer than a standard period which is customary in the given sector of operation, ranging from under two to five years. If mutually exclusive projects are available, for instance if there are alternative techniques of production available for creating otherwise identical productive capacity, ceteris paribus the pay-off period of investment is not minimized but is brought closest to the standard pay-off period of the sector involved, which is not to be exceeded. It is an average satisfying condition, not a marginal condition for optimization. Its satisfaction for any given investment and current costs associated with it can be ensured by a corresponding appropriate mark-up on current costs in output pricing.

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • D. M. Nuti
    • 1
  1. 1.