On this web page we take a look into the way Discounted Payback Period or DPBP is used to decide financial viability of an investment.Here you will find a defintion, formula, example, calculation with Discounted Payback Period along with a handy calculator.
Stop wasting time with arcane templates - we bet, here you will find all you need!
Discounted Payback Period Calculator
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What is Discounted Payback Period
Payback Period does not consider time value of money when providing an answer whereas with Discounted Payback Period we get to see the real value of cash inflows when they are measured in today's amount of money as these are discounted at an interest rate called the Discount Rate. We get to see the number of years required to recoup the initial cash outlay or our investment.
What is the formula for Discounted Payback Period?
Discounted Payback Period Example
Let us illustrate finding Discounted Payback Period with an example investment proposal. Let us say you were offered a series of cash inflows at the end of each of the next four years as $50,000, $40,000, $30,000, and $10,000. Say the Initial Cost Outlay for this proposal is $100,000.
Discounted Payback Period Calculation
| Year | Cash Flows | DCF | Cumulative DCF |
| 0 | -$100,000(q) | ||
| 1 | $50,000 | $47,169 | $47,169 |
| 2(p) | $40,000 | $35,599 | $82,769(r) |
| 3 | $30,000 | $25,188 | $107,958 |
| 4 | $10,000 | $7,920 | $115,879 |
Discounted Payback Period Step by Step
- We add up the discounted cash inflows beginning after the initial cash outlay in the cumulative cash inflows column
- We keep an eye on this last column and track the last year for which the cumulative total does not exceed the initial cash outlay
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We compute the part or fraction of the next year's cash inflow need to payback the initial cash outlay by taking the initial cash outlay less the cumulative total in the last step then divide this amount by the next years cash inflow.
E.g., ( $100,000 - $82,769 ) / $25,188 = 0.684 - To now obtain the Discounted Payback Period in years , we take the figure from the last step and add it to the year from the step 2. Thus our Discounted Payback Period is 2 + .684 = 2.684 years
- Instead of represent the years as decimal value we could represent the Discounted Payback Period in years and months this way We take the fraction 0.684 and multiply it by 12 to get the months which is 8.20 months. Thus our Discounted Payback Period is 2 years and 8 months
User submitted Discounted Payback Period Questions/Problems
Asked:
an investment project has annual cash inflows of $70000, $75000, $80000 and $84000. The required return on projects of similar risks is 14 percent. What is the discounted payback period for these cash flows if the initial cost is $80000? What if the initial cost is $130,000? What if it is $180,000? Please help. Thank you
Replied:
Hi Ava John
With initial cash outlay of $80,000
Discounted Payback Period is 1 Years and 4 months
With initial cash outlay of $130,000
Discounted Payback Period is 2 Years and 3 months
With initial cash outlay of $180,000
Discounted Payback Period is 3 Years and 2 months
Please keep in view there is no direct method to compute Discounted Payback Period, we resort to the procedural steps outlined on the page you visited on our site. Yet we can use MS Excel to find Discounted Payback Period, again there is no MS Excel formula for this and we resort to make use of writing programming statements as illustrated in the attached MS Excel WorkSheet
Please download the attached MS Excel WorkSheet and you can amend it to find DPBP for other cash flows by editing/appending values as illustrated on this web page here .
Download MS Excel Worksheet to find Discounted Payback Period with a MS Excel Payback Period function