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Aug 3, 2023 · There are two easy basis payback period formulas: Payback Period Formula – Averaging Method. Payback Period = Initial Investment / Yearly Cash Flow. Using the averaging method, the initial amount of the investment is divided by annualized cash flows an investment is projected to generate.
Payback Period Formula. To find exactly when payback occurs, the following formula can be used: Applying the formula to the example, we take the initial investment at its absolute value. The opening and closing period cumulative cash flows are $900,000 and $1,200,000, respectively.
Jun 5, 2023 · \footnotesize {\rm PP} = \frac {I} {C} PP = C I. where: \rm PP PP – Payback period in years; I I – Total sum you invested; and. C C – Annual cash inflow – the money you earn. In the apartment example, you could estimate the payback period with this equation:
The simple payback period formula is calculated by dividing the cost of the project or investment by its annual cash inflows. As you can see, using this payback period calculator you a percentage as an answer.
The payback period formula is used to determine the length of time it will take to recoup the initial amount invested on a project or investment. The payback period formula is used for quick calculations and is generally not considered an end-all for evaluating whether to invest in a particular situation.
May 24, 2019 · Solution. Payback Period = 3 + 11/19 = 3 + 0.58 ≈ 3.6 years. Decision Rule. The longer the payback period of a project, the higher the risk. Between mutually exclusive projects having similar return, the decision should be to invest in the project having the shortest payback period.
Nov 28, 2023 · The formula is relatively straightforward: Payback Period = Initial Investment / Annual Cash Flow. Let’s consider an example to illustrate this. Suppose an investment has an initial cost of $10,000 and generates annual cash flows of $2,500. To calculate the payback period, divide the initial investment ($10,000) by the annual cash flow ($2,500):
