Think & Done

• We add up the 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
• 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., ( $10,000 - $9,000 ) / $3,000 = 0.334
• To now obtain the payback period in years , we take the figure from the last step and add it to the year from the step 2. Thus our payback period is 2 + .334 = 2.334 years
• Instead of represent the years as decimal value we could represent the payback period in years and months this way We take the fraction 0.334 and multiply it by 12 to get the months which is 4.01 months. Thus our payback period is 2 years and 4 months

I need the formula of pay back period which we make easily our related sum.

Hi Bastian

There is no direct way to find Payback Period as it relates to Capital Budgeting Metrics. You can however use MS Excel to setup a template like the one I am attaching with this message to find Payback Period.

For further details on this Workbook, please visit this page about Using MS Excel to find Payback Period

Usually a Discounted Payback Period is more meaningful measure than the Regular payback period since the latter doesn't consider time value of money. If you require further notes on Discounted Payback Period please visit this page about Using MS Excel to find Payback Period.

can a project pay within a month and at the expirience a greater loss may be afrer two years.

Hi Steven Nemes

Yes that is possible, since we are dealing with expected cash inflows when finding payback period, there is no warranty that expected cash flows will materialize. It may happen that the net cash flows in the future aren't what we expected thus leading to a loss

need to calculate payback period, machinery cost 3,768,966, company expects as a result of cash flows 979,225, 1,158,886 and 1,881,497 over 3 years. What is payback period. How do you set this up

Hi Nino

Your answer is 2 years and 10 months

There is no direct formula to calculate Payback Period, the web page that you visited explains steps you can carry out to find Payback Period.

See this link to find payback period with MS Excel.

calculate the pay back preiod cash inflows are

year   cash inflow
1      10000
2      20000
3      40000
4      50000
5      10000

and the investment on project is 79000

Hi Rudra nath

Your answer is 3 years and 3 months.

I am attaching a MS Excel Workbook that includes the solution. Keep in mind there is no direct way to find payback period either numerically or with MS Excel. Thus we resort to writing a bit of programming code in MS Excel to find Payback Period

Calculate payback period for an investment of $24 000, with net monthly cashflows of $2 000

Hi Melania Chanakira

This one is rather simple, if the initial expense is $24,000 and you have monthly net cash flows of $2,000 then it will take one year to recoup the $24,000

formula, example, calculation for Payback Period on theme parks and gardens investment 5miillon USD 4 years capital loan to build and construct in 3phases

Hi Abolarin Kehinde

You need to provide the cash inflows that you expect from this project, without it we are not able to calculate Payback Period

New plant cost 30 million. It expects to generate cash flows of 13,000,000, 23,000,000 and 29,000,000 over the next 3 years. The cost of capital is 20 percent. What is the payback period for this project, the net present value, the irr that can be earned on this project?

Hi Nino

Nice to hear from you!

The Payback Period is 2.19 years or 2 years and 3 months

The NPV is $13,587,963

The IRR is 44%

See the calculations in the attached MS Excel WorkSheet

The table below shows the net cash flow for a real estate project. This project requires an initial investment of £9,800.00. The cost of borrowing is also 10%.

Period (years)   Net Cashflows (£)
1          2500
2          3200
3          4000
4          5000
5          8,200

Calculate :
i. The payback period ;
ii. The net present value (NPV);
iii. The internal rate of return (IRR);
iv. The Net Terminal Value.
Comment on whether the project is viable or not. Give reasons for your answer.

Hi Nazneen

NPV = £6,629
IRR = 29%
Profitability Index = 1.68
Discounted Payback Period = 3.55 years or 3 years and 7 months

Since IRR of 29% is greater than the cost of borrowing, thus we have positive NPV and a profitability index of 1.68. The payback period is 3.55 years or 3 years and 7 months.

We should accept this project as it provides us with Return of Investment.

See the attached MS Excel Worksheet for calculations

Carmen Electronics bought a new machine for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. What is the payback period for this project? If their acceptance period is 5 years, will this project be accepted?

Hi Jane Marie

I made couple of assumptions, that we are not considering Depreciation on machine and these are after tax figures.

The Regular payback period is 4.17 years, Thus we should accept the project
Discounted Payback Period = 5.67 years or 5 years and 8 months

Thus if the cost of capital was 10% we will have a discounted payback period of 5.67 years. So at 10% discount rate we will reject the project.

See the attached MS Excel Worksheet for calculations