Definition of payback period and payback period rule

A payback period is defined as the number of years needed to recover the initial investment. Assume that the initial investment is $100. If every year the firm could recover $30, then the payback period is 3.3 years:

>>import fincal
>>>cashflows=[-100,30,30,30,30,30]
>>> fincal.payback_period(cashflows)
    3.3333333333333335

The decision rule for the payback rule is given here:

Here, T is the payback period for a project while Tc is the maximum number of years required to recover the initial investment. Thus, if Tc is four, the preceding project with a payback period of 3.3 should be accepted.

The major advantage of the payback period rule is its simplicity. However, there are many shortcomings for such a rule. First, it does not consider the time value of money. In the previous case, $30 received at the end of the first year is the same as $30 received today. Second, any cash flows after the payback period is ignored...