Payback period formula

Formula The simple payback period formula is calculated by dividing the cost of the. 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.

Payback Period Method Commercestudyguide

To calculate your payback period youll divide the cost of the asset 400000 by the yearly savings.

. The payback period formula is used for quick. Payback Period Initial Investment Annual Payback For example imagine a company invests 200000 in new manufacturing equipment which results in a positive cash flow of 50000 per. Also in order to use this formula the net cash flow must.

Payback Period Formula In its simplest form the calculation process consists of dividing the cost of the initial investment by the annual cash flows. Payback period can be calculated by dividing an initial investment by annual cash flow from a project. How to calculate using the payback period formula.

For example if a company invests 300000 in a new production line and the production line then produces positive cash flow of 100000 per year then the payback period. The result is the number of years necessary to return the initial cost of the. Between mutually exclusive projects having.

As the payback period is usually expressed in years its length is calculated by dividing the amount of investment by the annual net cash inflow. Payback Period Formula In this formula the net cash flow would be over the course of the set payback period. 400000 72000 55 years This means you could recoup your.

By substituting the numbers into the formula you divide the cost of the investment 28120 by the annual net cash flow 7600 to determine the expected payback period of. Payback Period Full Years Until Recovery Unrecovered Cost at the Beginning of the Last YearCash Flow During the Last Year 5 500000500000 5 1 6 Years. Payback Period 3 1119 3 058 36 years Decision Rule The longer the payback period of a project the higher the risk.

Payback Period Formula Payback Period. To calculate using the payback period formula you can divide the initial cost of a project or investment by the amount. Management uses the payback period calculation to decide what investments or projects to pursue.

How To Use The Payback Period