Question

I am calculating the payback. How do you get the numerator to be $684,604?

Answer 1

If you have constant cash inflow stream then simply do the following:

= $684,604 / (The value of constant cash flow stream of any years because all cash flow would be same)

If there are discrete cash inflow streams then apply below formula:

                                                         

Payback period = A + |B|/C                                                   

A = Last period with a negative cumulative cash flow                                                 

|B| = Absolute value of cumulative cash flow at end of period A                                            

C = Total cash flow during the period after A                                                  

                                                         

EXAMPLE

Year	Cash flows	Cumulative cash flow
0	-$684,604.00	-$684,604.00
1	$320,000.00	-$364,604.00
2	$520,000.00	$155,396.00
3	$720,000.00	$875,396.00
4	$920,000.00	$1,795,396.00

Payback period = A + |B|/C                                                   

A = Last period with a negative cumulative cash flow                                                 

|B| = Absolute value of cumulative cash flow at end of period A                                            

C = Total cash flow during the period after A                                                  

Payback period = 1+364604/520000                                                  

Payback period = 1.70