Question

As you have already seen, Excel does not have a function to calculate the payback period. We have shown three ways to calculate the payback period, but there are numerous other methods as well. Below, the cash flows for a project are shown. You need to calculate the payback period using two different methods.

A. Calculate the payback period in a table. The first three columns of the table will be the year, the cash flow for that year, and the cumulative cash flow, respectively. The fourth column will show the whole year for the payback. In other words, if the payback period is 3 plus years, this column will have a 3, otherwise it will be a zero. The next column will calculate the fractional part of the payback period, or else it will display zero. The last column will add the previous two columns and display the final payback period calculation. You should also have a cell that displays the final payback period by itself, and a cell that returns the correct accept or reject decision based on the payback criteria.

B.Write a nested IF statement that calculates the payback period using only the project cash flow column. The IF statement should return a value of "Never" if the project has no payback period. In contrast to the example we showed previously, the nested IF function should test for the payback period starting with shorter payback periods and working towards longer payback periods. Another cell should display the correct accept or reject decision based on the payback criteria.

Required payback: 5

t	Cash flow	Cumulative cash flow	Year of payback	Fractional year	Payback period
0	$    (250,000)	$      (250,000)		0.00	0.00
1	$       41,000	(209,000)	0	0.00	0.00
2	$       48,000	(161,000)	0	0.00	0.00
3	$       63,000	(98,000)	0	0.00	0.00
4	$       79,000	(19,000)	0	0.00	0.00
5	$       88,000	69,000	4	0.22	4.22
6	$       64,000	133,000	0	0.00	0.00
7	$       41,000	174,000	0	0.00	0.00

	Payback period: 4.22 Accept or reject: Accept Payback period: Accept or reject:
	Please answer B. by showing the formula in excel. Thank you.

Answer 1

Hello

I'm pasting my excel output. Use your own intellect to do necessary modifications to copy paste these formulas.

t	Cash flow	Pay back Period	Formula used in column D
0	$(250,000.00)
1	$   41,000.00	0.00	=IF(SUM($D$4:D4)>0,0,IF(SUM($C$4:C5)>0,(B4+(-SUM($C$4:C4)/C5)),0))
2	$   48,000.00	0.00	=IF(SUM($D$4:D5)>0,0,IF(SUM($C$4:C6)>0,(B5+(-SUM($C$4:C5)/C6)),0))
3	$   63,000.00	0.00	=IF(SUM($D$4:D6)>0,0,IF(SUM($C$4:C7)>0,(B6+(-SUM($C$4:C6)/C7)),0))
4	$   79,000.00	0.00	=IF(SUM($D$4:D7)>0,0,IF(SUM($C$4:C8)>0,(B7+(-SUM($C$4:C7)/C8)),0))
5	$   88,000.00	4.22	=IF(SUM($D$4:D8)>0,0,IF(SUM($C$4:C9)>0,(B8+(-SUM($C$4:C8)/C9)),0))
6	$   64,000.00	0.00	=IF(SUM($D$4:D9)>0,0,IF(SUM($C$4:C10)>0,(B9+(-SUM($C$4:C9)/C10)),0))
7	$   41,000.00	0.00	=IF(SUM($D$4:D10)>0,0,IF(SUM($C$4:C11)>0,(B10+(-SUM($C$4:C10)/C11)),0))
Payback Period		4.22	=SUM(D5:D11)
Accept or Reject		Accept	=IF(D13<C11,"Accept","Reject")

I hope this solves your query.

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