Difference between revisions of "Pay back period"

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Pay back period
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The length of time required to recover the cost of an investment. Calculated as
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'''Pay back period''' = <math>\frac{Cost of Project}{Annual Cash Inflows}</math>
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Using the following example:
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{| class="wikitable"
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!Project
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!\[C_0\]
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!\[C_1\]
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!\[C_2\]
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!\[C_3\]
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!Payback
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!NPV at 10%
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|-
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|A
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|-2000
 +
|500
 +
|500
 +
|5000
 +
|3
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|+2624
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|-
 +
|B
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|-2000
 +
|500
 +
|1800
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|0
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|2
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|-58
 +
|-
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|C
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|-2000
 +
|1800
 +
|500
 +
|0
 +
|2
 +
|+50
 +
|-
 +
|}
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# The payback rule ignores all cash flows after the cut off date.
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# The payback rule gives equal weight to all cash flows before the cutoff date.
 
[[Category:finance]]
 
[[Category:finance]]
  

Latest revision as of 19:25, 27 August 2020

The length of time required to recover the cost of an investment. Calculated as

Pay back period =

Using the following example:

Project \[C_0\] \[C_1\] \[C_2\] \[C_3\] Payback NPV at 10%
A
500 500 5000 3
2624
B
500 1800 0 2
C
1800 500 0 2
50
  1. The payback rule ignores all cash flows after the cut off date.
  2. The payback rule gives equal weight to all cash flows before the cutoff date.
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