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How to calculate discounted payback period with different cash flows
You can decide to accept investments that have a discounted payback period within your required time frame of breaking even.
To calculate the discounted payback period, firstly we need to calculate the discounted cash inflow for each period using the following formula: Discounted Cash Inflow Actual cash inflow / (1 i).
The calculation is done after considering the time value of money and discounting the future cash flows.These two calculations, although similar, may not return the same result due to discounting of cash flows.Continue as needed for subsequent years, if any.For example, projects with higher cash flows toward the end of the project life will experience greater discounting due to compound interest.Table of Contents, definition of Discounted Payback Period, discounted payback period is a capital budgeting method used to calculate the time period a project will take to break even and recover the initial investments.
Discounted Payback Period Calculation, to begin, the cash flow of a project must be estimated and broken down into periods.
In the formula, i represents the discount rate, and n represents the year the cash flow is received.
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A discounted payback period gives the number of years it takes to break even from undertaking the initial expenditure, by discounting future cash flows and recognizing the time value of money.
(See References 1, Page 1).Formula: Discounted Payback Period (DPP) A (B / C).The calculation for discounted payback period can get complex if there are multiple negative cash flows during an investment period.What is the 'Discounted Payback Period'.Therefore, after the first period, the project still requires free eye exam walmart coupon 2011 2,038.46 to break even.In the example, divide 600 by (1.10)1, which simplifies as 600 divided.101.Using a present discount beauty products jersey value discount calculations, this figure is 961.54.In the next step, we calculate the discounted payback period using the following formula: Discounted Payback Period A B /.Step 3, determine how much of the final year is required to pay back the initial investment.