Since the payback period can be viewed as a measure of risk exposure, many firms use it as a supplement to sophisticated decision techniques.

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The payback period is often used as a preliminary screening tool to assess investment opportunities quickly. It measures how long it takes for an investment to break even in terms of cash inflows and outflows. As it reflects the time required to recoup the initial investment, it can be seen as an indicator of the risk exposure of the project. However, the payback period does not take into account the time value of money or the cash flows beyond the payback period, so it cannot be relied upon as the sole decision tool. Instead, it is often used as a supplement to more sophisticated analysis techniques such as net present value or internal rate of return.

Since the Payback Period Can Be Viewed as a Measure