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payback period





Calculator-payback period


FORMULA:

  • The payback period is the time it takes for the cumulative sum of the annual net cash inflows from a project to equal the initial net cash outlay. In effect, the payback period answers the question:
    How long will it take the capital project to recover, or pay back, the initial investment?
  • If the net cash inflows each year are a constant amount, the formula for the payback period is:
    Pay back period=
    Initial cash outlay
    Annual net cash inflow benefit
  • Example:
    Assuming a project is being consisted to require investment of N12000 and the estimated cash inflow is N4000 Pay back Period=
    12000/4000=3