Please explain the formula for payback period.

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $50,000, and the cost of capital for each is 10%. The projects' expected net cash flows are as follows: Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5 5,000 15,000 Payback period is defined as how fast a project recovers its initial cost for Project A = 2 + (5,000 /10,000) = 2.5years For Project B = 3 + (5,000 / 15,000) = 3.33 Years