How do you calculate Payback Period on Excel by using FAME function? What is the formula?

Expert Solution

Payback period is the time required to recover the cost of total investment meant into a business.The period of time it takes for a business investment to recover, or “pay back,” its initial costs. Measured in units of time, usually years. Excel does not have an automatic function for calculating payback period.

Types of payback period-

1. The net present value of NPV method is one of the common processes of calculating payback period which calculates the future earnings at present value.

2. Discounted payback period is a capital budgeting procedure which is frequently used to calculate the profitability of a project.

3. IRR or internal rate of return which emphasizes on the rate of return from a particular project each year

Microsoft Excel provides an easy way to calculate payback periods.

Calculating the Payback Period using Formula in the template given.

1	A	B	C	D	E	F
2	Initial investment for the project	2
3	Cash flow per year	0.50
4	Payback period = Initial Investment / Cash Inflows
5	Payback period formula	=B2/B3
6	Payback period IN YEARS	4

jeff jeffy answered 2 years ago

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