Payback Period Calculator
This payback period calculator is a the number of years required to break even from an initial investment. The Payback Period is equal to the total sum you invested Divided annual cash inflow – the money you earn.
Formula us,
PP = I / C
let us consider,
- PP is the payback period in years,
- I is the total sum you invested, and
- C is the annual cash inflow – the money you earn.
Example For Payback Period
Imagine that you are going to invest $200,000 and purchase an apartment. You are going to rent it to tenants for $25,000 a year. How many years do you need for this investment to pay back?
PP = $200,000 / $25,000 = 8 years
Discounted payback period formula
Discounted Payback Period Equal to 1number of value less than to total sum you invested multiple the discount rate divided to the annual cash inflow divided to 1 numbers of value added to the discount rate.
Formula us,
DPP = – ln(1 – I * R / C) / ln(1 + R)
let us consider,
- DPP is the discounted payback period in years,
- R is the discount rate,
- I is the total sum you invested, and
- C is the annual cash inflow – the money you earn.
You can check the difference between the PP and DPP of the apartment example. Let’s assume a discount rate of 5%. I (1,00,000) ,C (24,000).
DPP = – ln(1 – I * R / C) / ln(1 + R)
DPP = – ln(1 – $100,000 * 0.05 / $24,000) / ln(1 + 0.05)
The Discount Pay back Period = 4.79 years