Payback Period Formula Example
There are
two formulas for payback period calculation i.e. for uneven cash flows and even
cash flows.
1.
Payback Period Formula Example For
Uneven Cash Flows
A + B/C
A= Year previous to year
in which cumulative cash becomes negative
B= Cumulative Balance of investment
at year A
C= Investment recover
during the year in which cumulative balance becomes negative.
|
Investment for a project
|
|
($ 1200)
|
|
Year 1
|
$ 600
|
$ 600
|
|
Year 2
|
$ 400
|
$ 200
|
|
Year 3
|
$ 400
|
($ 200)
|
A = 2 Year
B= $ 200
C= $ 400
Put value in formula = A+
B/C
= 2 + 200/400
=2.5 Years
2.
Payback Period Formula Example Foe
Even Cash flows
= Initial Investment/Cash flows
|
Investment
|
$ 1200
|
|
Cash flows
|
$ 400
|
=$ 1200/$ 400
=3 Years
