Cutoff period is a term in
finance. In
capital budgeting
Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects ...
, it is the period (usually in years) below which a project's
payback period Payback period in capital budgeting refers to the time required to recoup the funds expended in an investment, or to reach the break-even point. Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). ''Marketing Metrics: Th ...
must fall in order to accept the project.
Generally it is the time period in which a project gives its investment back if a project fails to do so the project will be rejected.
For example a project has the following inflows
years Inflows respectively
1 100,000
2 150,000
3 200,000
If the project's payback is 2 years having an outflow of 250,000 the cut off period must be 2 years otherwise the project will be rejected.
Capital budgeting
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