Payback Period

See: IRR.

You invest $5 million in a new waterslide for your theme park, The Enemizer. Traffic to the park at $20 a visit picks up 1,000 people a day for a while. Only 200 days a year are "live" for the park; 4 grand times 200, and that's $800k paid back in year one. And that's great...6 years and change to pay it all back if there was no interest attached to the $5 million.

But there is. You could have done other things with that $5 million other than put it into building The Enemizer. Let's say you could have gotten 10% a year return on it...so there's $500k a year of "payback" you need to first make to even begin paying off the principal you owe. If you include the interest, the $800k only pays down $300k a year in principal.

Lots of ways to slice and dice the payback period. The key idea: money ain't free; there are always other things you could have done with it. So you have to figure those numbers into your total.