IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2511.03568.html
   My bibliography  Save this paper

Defining the payback period for nonconventional cash flows: an axiomatic approach

Author

Listed:
  • Mikhail V. Sokolov

Abstract

The payback period is unambiguously defined for conventional investment projects, projects in which a series of cash outflows is followed by a series of cash inflows. Its definition for nonconventional projects is more challenging, since their balances (cumulative cash flow streams) may have multiple break-even points. Academics and practitioners offer a few contradictory recipes to manage this issue, suggesting to use the first break-even point of the balance, the last break-even point of the balance, or the break-even point of the modified cumulative cash flow stream, representing the moment of time in which the cumulative cash inflow exceeds the total cash outflow. In this note, we show that the last break-even point of the project balance is the only definition of the payback period consistent with a set of economically meaningful axioms. An analogous result is established for the discounted payback period.

Suggested Citation

  • Mikhail V. Sokolov, 2025. "Defining the payback period for nonconventional cash flows: an axiomatic approach," Papers 2511.03568, arXiv.org.
    • Handle: RePEc:arx:papers:2511.03568
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2511.03568
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John R. Graham, 2022. "Presidential Address: Corporate Finance and Reality," Journal of Finance, American Finance Association, vol. 77(4), pages 1975-2049, August.
    2. Yard, Stefan, 2000. "Developments of the payback method," International Journal of Production Economics, Elsevier, vol. 67(2), pages 155-167, September.
    3. John Graham, 2022. "Presidential Address: Corporate Finance and Reality," NBER Working Papers 29841, National Bureau of Economic Research, Inc.
    4. Siziba, Simiso & Hall, John Henry, 2021. "The evolution of the application of capital budgeting techniques in enterprises," Global Finance Journal, Elsevier, vol. 47(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sokolov, Mikhail V., 2024. "NPV, IRR, PI, PP, and DPP: A unified view," Journal of Mathematical Economics, Elsevier, vol. 114(C).
    2. repec:osf:socarx:2zy5h_v1 is not listed on IDEAS
    3. Paul F. Hark & Christoph Schneider, 2025. "Does the CAPM drive misvaluations in M&As?," Journal of Business Economics, Springer, vol. 95(2), pages 427-463, April.
    4. Barry, John W. & Campello, Murillo & Graham, John R. & Ma, Yueran, 2022. "Corporate flexibility in a time of crisis," Journal of Financial Economics, Elsevier, vol. 144(3), pages 780-806.
    5. Masao Fukui & Niels Joachim Gormsen & Kilian Huber, 2024. "Sticky Discount Rates," NBER Working Papers 32238, National Bureau of Economic Research, Inc.
    6. De Haas, Ralph & Guriev, Sergei & Stepanov, Alexander, 2025. "State ownership and corporate leverage around the world," Journal of Corporate Finance, Elsevier, vol. 93(C).
    7. Kolev, Atanas & Randall, Timothy, 2024. "The effect of uncertainty on investment: Evidence from EU survey data," EIB Working Papers 2024/02, European Investment Bank (EIB).
    8. Michelle Lowry, 2024. "The questions being asked: Academic research, the media, and regulators," The Financial Review, Eastern Finance Association, vol. 59(3), pages 549-560, August.
    9. Nishihara, Michi & Shibata, Takashi & Zhang, Chuanqian, 2023. "Corporate investment, financing, and exit model with an earnings-based borrowing constraint," International Review of Financial Analysis, Elsevier, vol. 85(C).
    10. Giovanazzi, Carmen & Victor, Vincent & Putscher, Dorothee, 2024. "Corporate investment trends in Germany: The role of financialization, intangibles and M&A," ifso working paper series 40, University of Duisburg-Essen, Institute for Socioeconomics (ifso).
    11. Fabian Hollstein & Marcel Prokopczuk & Christoph Matthias Würsig, 2024. "Market power and systematic risk," Financial Management, Financial Management Association International, vol. 53(2), pages 233-266, June.
    12. Horn, Matthias & Oehler, Andreas, 2024. "Constructing stock portfolios by sorting on ESG ratings: Does the rating provider matter?," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    13. van der Geest, Jesse, 2024. "Economic effects of tax avoidance and compliance," Other publications TiSEM aaca33bf-975d-4e21-9b5f-5, Tilburg University, School of Economics and Management.
    14. Liu, Yujie & Liu, Hangbo & Li, Jianhong, 2023. "Tax planning ability and the CFO's compensation," Finance Research Letters, Elsevier, vol. 58(PD).
    15. Bao, Te & Corgnet, Brice & Hanaki, Nobuyuki & Okada, Katsuhiko & Riyanto, Yohanes E. & Zhu, Jiahua, 2025. "Financial forecasting in the lab and the field: Qualified professionals vs. smart students," Journal of Behavioral and Experimental Finance, Elsevier, vol. 46(C).
    16. Lu Qiao & Emmanuel Adegbite & Tam Huy Nguyen, 2024. "CFO overconfidence and conditional accounting conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 1-37, January.
    17. De Vito, Antonio & Hillmann, Lisa & Jacob, Martin & Vossebürger, Robert, 2025. "Do personal income taxes affect corporate tax-motivated profit shifting?," Journal of Accounting and Economics, Elsevier, vol. 79(2).
    18. Vivien Lefebvre, 2023. "Turning 30 and myopic? Temporal orientation and the firm lifecycle," Post-Print hal-04563638, HAL.
    19. Oliver Binz & John R. Graham, 2022. "The Information Content of Corporate Earnings: Evidence from the Securities Exchange Act of 1934," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 60(4), pages 1379-1418, September.
    20. Haochen Guo & Petr Polak, 2024. "Finance centralization—research on enterprise intelligence," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-9, December.
    21. repec:osf:socarx:2zy5h_v2 is not listed on IDEAS
    22. Vivien Lefebvre, 2023. "Mobilizing potential slack and firm performance: Evidence from French SMEs before and during the COVID-19 period," Post-Print hal-04585954, HAL.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2511.03568. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.