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Discounted Payback Period Calculator

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What is Discounted Payback Period

Discounted Payback period is a discounted cash flow technique to evaluate a capital investment proposal, it refers to the time required to recover the initial investment or the initial cash outlay as it is called in financial terms.

Discounted Payback Period MS Excel Example

In MS Excel, place the cursor on cell C4 and type the following function to compute the discounted cash flow for year 1

=C3/POWER(1+$B$1,C2)

Once you have typed this function click on cell C4 and copy its contents to cells D4 through F4 by clicking on COPY icon or pressing Ctrl+C. You can highlight the cells D4 through F4 by clicking and dragging the cells with cursor. Once these cells are highlighted press the Paste icon or press Ctrl+V

Now place the cursor on Cell C5 and type

=SUM($B$4:C4)

Once you have typed this function click on cell C5 and copy its contents to cells D5 through F5 by clicking on COPY icon or pressing Ctrl+C You can highlight the cells D5 through F5 by clicking and dragging the cells with cursor. Once these cells are highlighted press the Paste icon or press Ctrl+V

Now you have discounted cumulated cash flows under each year. We are left with the task to find payback period. Cell B6 lies underneath CF₀, and we will place the text N/Ain cell B6

The logic behind this will become apparent as the cell with the payback period will show a value and remaining cells with show the text N/A

Place the cursor in cell C6 and type the following text in it

=IF(AND(C5>0,B6="N/A"),B2+(C4-C5)/C4,"N/A")

Click on cell C4 after typing this function and press Ctrl+C keys or Copy icon to copy this formula in other cells D4 through F4. You can highlight the cells D4 through F4 by clicking and dragging the cells with cursor. Once these cells are highlighted press the Paste icon or press Ctrl+V

The cell with the payback period will show the value, other cells will show the text N/A

MS Excel Discounted Payback Period Template

Download this MS Excel Template to find Payback and Discounted Payback Period