Engineering economics – Understanding payback period: In project appraisal for a chemical plant or process unit, the payback period is best defined as which of the following?

Introduction / Context:
The payback period is a quick-screening capital budgeting metric widely used in chemical engineering economics to judge how rapidly a project returns its original investment through net cash inflows. Although simple, it is helpful for liquidity-oriented decisions and early risk triage.

Given Data / Assumptions:

• Payback focuses on cumulative net cash inflows, not accounting profit.
• Initial investment is a known outlay at time zero (or over a short construction window).
• Time value of money is ignored in the basic (undiscounted) payback definition.

Concept / Approach:
By definition, payback period is the time it takes for cumulative cash inflows to equal the initial investment. It is a liquidity and risk proxy, not a profitability or value-creation measure. Projects with shorter payback are often preferred when uncertainty is high or capital is constrained.

Step-by-Step Solution:
Identify metric: payback looks at cumulative cash inflows only up to recovery.Compare choices: economic life is the useful operating life; it is not the same as payback.Note that earnings after recovery do not influence the payback number itself.Therefore, the correct definition is: time until cumulative inflows equal the initial investment.

Verification / Alternative check:
Test with a simple cash-flow table: if a project costs ₹100 and returns ₹40, ₹40, and ₹30 by years 1–3, payback occurs sometime in year 3 when cumulative reaches ₹110. Later inflows do not change the payback already computed.

Why Other Options Are Wrong:

• Economic life equals operating/financial life; it is not the payback period.
• Payback explicitly ignores post-recovery cash flows; those do not affect the computed period.
• “All of the above” cannot be correct because the first and third statements are false.

Common Pitfalls:
Confusing accounting profit with cash flow; ignoring that payback does not incorporate the time value of money or later-year benefits.

Final Answer:
The length of time required until cumulative earnings (cash inflows) equal the initial investment.