Monday 20 August 2018

Payback Period

Payback Period (PBP) is the period of time required for the cumulative expected cash flows to equalize the initial investment or cash outflow.


1.  Equivalent or constant cash inflow.

PBP = Initial Investment / Cash Inflow


2.  Unequal Cash Inflow

PBP = N + [ (Initial Investment - Accumulated Cash Inflow for Year N)/Cash Flow for Year M ]

N = the number of years for the accumulated cash flows that had not exceeded the capital or investment.

M = the year where the total accumulated cash flow is equal to or more than the capital or investment.

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