Payback Period and Book Returns

Payback Period (PP)

Period required to get back initial investment (adjusted for time value)
Decision Rule: Consider projects whose payback period is less than or equal to hurdle payback period
Hurdle Payback Period is some standard period defined for PP.

Book Return

It is also called as Accounting Rate of Return. This is defined as

Book Return = (Book Income)/(Book Assets)
or
ARR = (Avg PAT + Interest)/(Avg Book Value)

How is Book Income calculated? is also called as PAT.
How is Avg Book Value calculated? is the average of year after year depreciation of the initial investment.

Note: In practice it is better to avoid this value because it is easy to manipulate this value (one reason can be because of different depreciation methods).