In performing a payback analysis one needs to adjust costs and benefits for the time value of money.

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The time value of money is a concept that states that money today is worth more than the same amount of money in the future. This is because money today can be invested and earn interest, so it will grow in value over time. When performing a payback analysis, it is important to adjust costs and benefits for the time value of money so that they can be compared on an equal basis.

In Performing a Payback Analysis One Needs to Adjust Costs