Payback Period Example
ABC starting
a new construction project with initial investment of $ 600. Cash inflow during
the year is as under. Calculate the payback period.
Initial Investment
|
$ 600
|
Year 1
|
$ 400
|
Year 2
|
$ 200
|
Year 3
|
$ 300
|
Solution
Years
|
Recovery during the year
|
Cumulative
|
Initial Investment
|
($ 600)
|
$ 600
|
Year 1
|
$ 400
|
$ 200
|
Year 2
|
$ 200
|
$ 0
|
Year 3
|
$ 300
|
Comments on Example
1. The investment fully recover in year
2
2. The cash flow after the recovery is not
relevant for payback period
