Payback period formula

The payback period formula is used for quick. Payback Period Initial Investment Annual Payback For example imagine a company invests 200000 in new.

Payback Period Business Tutor2u

Advantages and Disadvantages of Payback Period formula.

. Payback Period Formula In its simplest form the calculation process consists of dividing the cost of the initial investment by the annual cash flows. Written out as a formula the payback period calculation could also look like this. Divide the cash outlay which is assumed to occur entirely at the beginning of the project by the amount of net cash inflow.

Payback Period 3000000. Paybackperiod frac I CF P ayback period CF I. 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.

When applying the payback period formula to a specific investment you can take the initial cost of the investment and divide it by the investments yearly cash flow. The payback period formula is used to determine the length of time it will take to recoup the initial amount invested on a project or investment. Where I is an initial investment the amount of money that has been invested at the beginning and CF is cash flow.

The length of time YearsMonths needed to recover the initial capital back from an investment is called the Payback Period. Payback Period Formula Payback Period. The formula for the payback method is simplistic.

In capital budgeting the payback periodis. As mentioned before it is the most straightforward way to calculate the time taken to reach the. How to Calculate the Discounted Payback Period The shorter the payback period the more likely the project will be accepted all else being equal.

400000 72000 55 years This means you could recoup your. The payback period for this investment is 7 and a half years - which we calculate by dividing 3 million with 400000 using the formula shown below. Step by Step Procedures to Calculate Payback Period in Excel.

To calculate your payback period youll divide the cost of the asset 400000 by the yearly savings.

Discounted Payback Period Meaning Formula How To Calculate