In: Finance
Discounted Payback period:
Discounted Payback period is the period in which initial investment
is recovered after considering the time value of money.
Discounted PBP = Year in which least +ve Closing Balance + [
Closing balance at that year / Discounted Cash flow in Next Year
]
If Actual disc PBP > Expected disc PBP - Project will be
rejected
Actual disc PBP </= Expected disc PBP - Project will be
accepted
Year | Opening Balance | Cash Flow | PVF @11 % | Disc CF | Closing Balance |
1 | $ 480,000.00 | $ 175,000.00 | 0.9009 | $ 157,657.66 | $ 322,342.34 |
2 | $ 322,342.34 | $ 175,000.00 | 0.8116 | $ 142,033.93 | $ 180,308.42 |
3 | $ 180,308.42 | $ 175,000.00 | 0.7312 | $ 127,958.49 | $ 52,349.92 |
4 | $ 52,349.92 | $ 175,000.00 | 0.6587 | $ 115,277.92 | $ -62,928.00 |
5 | $ -62,928.00 | $ 175,000.00 | 0.5935 | $ 103,853.98 | $ -166,781.98 |
Disc PBP = Year in which least +ve Closing Balance + [ Closing
balance at that year / Cash flow in Next Year ]
= 3 Years + [ $ 52349.92 / $ 115277.92 ]
= 3 Years + 0.45 Years
= 3.45 Years
Discounted Payback Period is 3.45 Years