Payback period calculation formula

Written out as a formula the payback period calculation could also look like this. Payback Period is nothing but the number of years it takes to recover the initial cash outlay invested in a particular project.

Calculating Payback Period Youtube

To calculate the Actual and Final Payback Period we.

. Payback Period Formula. How to Calculate a Payback Period. Accordingly Payback Period formula Full Years.

The result of the payback period. We obtain the break-even point of a project when the net cash flows exceed the initial. What is the Payback Period.

Formula The simple payback period formula is calculated by dividing the cost of the. The payback period of a given investment or project is an important. Discounted Payback Period Year before the discounted payback period occurs Cumulative cash flow in year before recovery Discounted cash flow in year after recovery 2.

When businesses choose to make an. If the cash inflows are. The formula to calculate the payback period of an investment depends on whether the periodic cash inflows from the project are even or uneven.

Formula for Payback Period Initial InvestmentNet Annual Cash. Example of Calculating the Payback Period. The point of no profit and no loss is the break-even point.

The payback period formula is used for quick calculations and is generally not considered an end-all for evaluating whether to invest in a particular situation. 100 20 5 years Discounted. Payback Period Initial Investment Annual Payback For example imagine a company invests 200000 in new.

Payback Period Initial investment Cash flow per year As an example to calculate the payback period of a 100 investment with an annual payback of 20. By substituting the numbers into the formula you divide the cost of the investment 28120 by the annual net cash flow 7600 to determine the expected payback period of. Management uses the payback period calculation to decide what investments or projects to pursue.

Investment Annual Net Cash Flow From Asset. In simple terms it refers to the time taken by a project to reach a level where there is no loss no profit ie. It can get a bit tricky when annual net cash flow is expected to vary from year to.

In its simplest form the calculation process consists of dividing the cost of the initial investment by the annual cash flows. Negative Cash Flow Years Fraction Value which when applied in our example E9 E12 32273 This means it would take 3 years and 2. The payback period is the length of time required to recover the cost of an investment.

The payback period calculation is simple.

How To Calculate The Payback Period With Excel