Payback period formula

Cash flow per year ln1 discount rate The following is an example of determining discounted payback period using the same example as used for determining payback period. The denominator of the calculation is based on the average cash flows from the project over several years - but if the forecasted cash flows are.

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The formula for discounted payback period is.

. Discounted Payback Period - ln1 - investment amount discount rate. This formula can be applied towards any kind of project irrespective of time duration capital size etc. Advantages and Disadvantages of Payback Period formula.

Average Collection Period Formula Average accounts receivable balance Average credit sales per day The first formula is mostly used for the calculation by investors and other professionals. The payback period formula does not account for the output of the entire system only a specific operation. In the first formula to calculate Average collection period we need the Average Receivable Turnover and we can assume the Days in a year as 365.

Considering that the money going out is subtracted from the discounted sum of cash flows coming in the net present value would need to be positive in order to be considered a valuable investment. In the formula the -C 0 is the initial investment which is a negative cash flow showing that money is going out as opposed to coming in. If a 100 investment has an annual payback of 20 and.

As mentioned before it is the most straightforward way to calculate the time taken to reach the break-even point. Thus its use is more at the tactical level than at the strategic level.

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