Payback Period Formula
Payback period
can be calculated differently for uneven cash flows and even cash flows.
1.
Payback Period Formula for uneven
cash flows
A + B/C
A= previous year of year
in which cumulative cash flow became negative
B= Cumulative Balance at
year A
C= Total amount recover in
a year (year in which total recovery took place)
|
Investment
|
|
($ 1000)
|
|
Year 1
|
$ 600
|
$ 400
|
|
Year 2
|
$ 300
|
$ 100
|
|
Year 3
|
$ 300
|
($ 200)
|
A = 2 Year
B= $ 100
C= $ 300
Put value in formula = A+
B/C
= 2 + 100/300
=2.33 Years
2.
Payback Period Formula for even cash
flows
= Initial Investment/Cash flows
|
Investment
|
$ 1000
|
|
Cash flows
|
$ 400
|
=$ 1000/$ 400
=2.5 Years
