when would a company use the payback period for capital budgeting 
the payback period is favored when a company is under liquidity constraints because it can show how long it should take to recover the money laid out for the project if short term cash flows are a concern a short payback period may be more attractive than a longer term investment that has a higher npv the bottom linethe payback period is the amount of time it takes to break even on an investment the appropriate timeframe for an investment will vary depending on the type of project or investment and the expectations of those undertaking it investors may use payback in conjunction with return on investment roi to determine whether or not to invest or enter a trade corporations and business managers also use the payback period to evaluate the relative favorability of potential projects in conjunction with tools like irr or npv 