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payback period

Excel payback period function in tadXL v2.5

1. tadPP ( cash flows, period, concentration )
2. tadTPP ( cash flows, period, concentration )
3. tadXPP ( cash flows, dates )
4. tadXTPP ( cash flows, dates )
tadPP ( cash flows, period, concentration )

Data output

Payback period =
tadTPP ( cash flows, period, concentration )

Data output

Real Payback period =
tadXPP ( cash flows, dates )

Data output

Payback period =
tadXTPP ( cash flows, dates )

Data output

Real Payback period =

In finance, the payback period is one of the key measure that determines the investor's return on investment. It is defined as the time period required to recover "just" the initial cost incurred in undertaking an investment. If we were to be concerned about recovering all costs undertaken while making an investment, this would be referred to as the real payback period. The distinction between payback and real payback period is that the former is only concerned with recovery of just the initial cost whereas the latter ensures that all costs are recovered. Finding payback period manually is not quite simple as it sounds the reason for such difficulty is attributed to the lack of any payback period formula. This is one reason that analyst make use of tables of running sums of cash flows in determining the payback period.

For example, given that an investment required an initial cost of 100 million dollars and ensures annual receipts of 60 million each for the next four years. An analyst would put together a table as the one shown following this text that will have columns for the time periods, the cash flows and the running sum. The row at which the running sum turns positive is where the payback period is located, and the analyst is then able to determine the complete payback period using simple arithmetic as detailed below following the table.

 T CF CCF 0 -100 -100 1 60 -40 2 60 20 3 60 80 4 60 140
Payback period calculation

Year before recovery = 1
Remaining Years = ( 60 - 20 ) / 60
Remaining Years = 0.66666666666667
Payback Period = 1.6666666666667 years

Finding payback period in Excel

Using tadXL functions such as tadPP, finding payback period in Excel 2007, 2010 and 2013 becomes really easy. Let us take the cash flows from our previous investment, to find the payback period in Excel we would type the following:
=tadPP( {-100, 60, 60, 60, 60} )
1.666666667

or