Payback Period as Defined:
"Payback period is the length of time required by the cumulative net cash in-flows to cover-up the fixed capital investments".
The commoner's concept of payback goes something like this
Payback period = Total capital investment /(Total cash inflows / year)
While, many a times the payback computed through the above relationship resembles quite closely the correctly computed one, nevertheless, these are mere coincidences owing to classic financial environment of the project and might lead to serious errors in cases where financial terms are a bit complicated. What are the lacunae in the above calculation?