Useful tips

How do you calculate the cash payback period?

How do you calculate the cash payback period?

To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1,00,000 with an annual payback of Rs 20,000. Payback Period = 1,00,000/20,000 = 5 years. You may calculate the payback period for uneven cash flows.

What is the cash payback method?

The cash payback method is a tool that managerial accountants use to evaluate different capital projects and decide which ones to invest in and which ones to avoid. The cash payback method estimates how long a project will take to cover its original investment.

What is the decision rule for cash payback period?

The payback period disregards the time value of money. 1 It is determined by counting the number of years it takes to recover the funds invested. For example, if it takes five years to recover the cost of an investment, the payback period is five years.

How do you calculate payback period from months and years?

The payback period is the number of months or years it takes to return the initial investment. To calculate a more exact payback period: payback period = amount to be invested / estimated annual net cash flow.

What is cash on hand in accounting?

Definition. The Cash on Hand KPI refers to the amount of money that your business has immediately available on the last day of the reporting period.

How do you calculate the payback period?

There are two ways to calculate the payback period, which are: Averaging method. Divide the annualized expected cash inflows into the expected initial expenditure for the asset. Subtraction method. Subtract each individual annual cash inflow from the initial cash outflow, until the payback period has been achieved.

What is necessary to calculate payback period?

Payback period can be calculated by dividing an initial investment by annual cash flow from a project. The result is the number of years necessary to return the initial cost of the investment.

How to calculate payback period [example]?

Enter all the investments required.

  • Enter all the cash flows.
  • Calculate the Accumulated Cash Flow for each period
  • calculate the fraction to reach the break even point.
  • Count the number of years with negative accumulated cash flows.
  • using the number of years with negative cash flow as index.
  • How to calculate discounted payback period?


  • In this calculation:
  • ,
  • ,
  • Z is the value of the DCF in the next period after X.