The discounted payback period uses the time value of money to discount future cash flows to see how long it will be before the initial investment of a project is recovered. The payback period is the simplest project evaluation method.

Net present value (NPV) is calculated by subtracting the present value of a project’s cash outflows from the present value of the project’s cash inflows. The internal rate of return (IRR) of a project is the discount rate that sets the present value of a project’s cash inflows exactly equal to the present value of the project’s cash outflows.

discounted payback period — the length of time it will take for the present value of the future cash inflows of a project to equal the initial cost of the investment. payback period — the length of time it will take for a company to make enough money from an investment to recover the initial cost of the investment. net present value (NPV) — the present value of the cash inflows of a project minus the present value of the cash outflows of the project. internal rate of return (IRR) — the discount rate that sets the NPV of a project equal to zero.