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Payback Time

The lifecycle cash position isn't the only information we can derive from a cash flow analysis. A cash flow picture also indicates the extent to which the business is investing in the project at each period in the analysis. It quantifies the “investment flow” if you will. Normally, as a project starts to return revenue, this investment flow is reduced and will likely become zero prior to the end of the project. At this point the project is said to have become “self-funding” or to have reached “self-funding status.” It no longer needs cash injections from the business to sustain it.

This does not mean the project has reached a breakeven point, however, as there may still be a debt to repay to the business (see discussion of breakeven time below). We will call the period between self-funding status and breakeven status the “repayback period.” Figure 2.1 illustrates these points over the timespan of a successful application development project.

02fig01.gifFigure 2.1. A Successful Application Development Project

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