Changes

==Payout==

==Payout==

The ''payout'' is the length of time required for the venture to generate income sufficient to equal capital investment and expenses (see Figure 2). This measure is of greater importance to small investors, who are concerned about liquidity and risk exposure. It can be calculated using constant purchasing power dollars. In cases where a loan payment is required, dollars of the day should be used. Its major drawbacks are that it doesn't consider cash flows ''after'' payout occurs, nor does it address any aspect of investment performance. Although payout implicitly touches on financial risk and exposure (which translates to “when do I get my money back?!”), it does not address chance of success in any way.

[[file:key-economic-parameters_fig2.png|left|thumb|{{figure number|2}}Undiscounted and discounted cumulative net cash flow streams for example multiwell extension project.]]

[[file:key-economic-parameters_fig2.png|thumb|{{figure number|2}}Undiscounted and discounted cumulative net cash flow streams for example multiwell extension project.]]

The ''payout'' is the length of time required for the venture to generate income sufficient to equal capital investment and expenses (see [[:file:key-economic-parameters_fig2.png|Figure 2]]). This measure is of greater importance to small investors, who are concerned about liquidity and risk exposure. It can be calculated using constant purchasing power dollars. In cases where a loan payment is required, dollars of the day should be used. Its major drawbacks are that it doesn't consider cash flows ''after'' payout occurs, nor does it address any aspect of investment performance. Although payout implicitly touches on financial risk and exposure (which translates to “when do I get my money back?!”), it does not address chance of success in any way.

Megill<ref name=pt02r12 /> points out a useful rule of thumb: a rough, reciprocal relationship exists between payout and DCFROR. A project that pays out in 3 years will have a DCFROR of about 33%; one that pays out in 4 years will have a DCFROR of about 25%.

Megill<ref name=pt02r12 /> points out a useful rule of thumb: a rough, reciprocal relationship exists between payout and DCFROR. A project that pays out in 3 years will have a DCFROR of about 33%; one that pays out in 4 years will have a DCFROR of about 25%.