This is the easiest way for a new asset to budget. The reimbursement mechanism decides how long a firm needs to pay off an asset. A firm, for example, wants to purchase a new IT server for 500,000 dollars, and the server will produce 50, 000 dollars year. In ten years time the purchase can be paid off, according to this capital budgeting scenario.

The entire purchase price of $50,000 cash flow over 10 years amounts to $500,000.

The faster the payback time the faster the new equipment may be recovered by the firm.