What is meant by discounted payback period?

The discounted payback period is a capital budgeting procedure used to determine the profitability of a project. A discounted payback period gives the number of years it takes to break even from undertaking the initial expenditure, by discounting future cash flows and recognizing the time value of money.

What is the discounted payback period of this project?

The discounted payback period (DPB) is the amount of time that it takes (in years) for the initial cost of a project to equal to discounted value of expected cash flows, or the time it takes to break even from an investment. It is the period in which the cumulative net present value of a project equals zero.

Is payback period a DCF?

Discounted payback period is a variation of payback period which uses discounted cash flows while calculating the time an investment takes to pay back its initial cash outflow. One of the major disadvantages of simple payback period is that it ignores the time value of money.

What is simple payback period?

The payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a break-even point.

How do you calculate payback?

To determine how to calculate payback period in practice, you simply divide the initial cash outlay of a project by the amount of net cash inflow that the project generates each year. For the purposes of calculating the payback period formula, you can assume that the net cash inflow is the same each year.

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What is a good payback period?

As much as I dislike general rules, most small businesses sell between 2-3 times SDE and most medium businesses sell between 4-6 times EBITDA. This does not mean that the respective payback period is 2-3 and 4-6 years, respectively.

How do you calculate payback period for a project?

There are two ways to calculate the payback period, which are:

  1. Averaging method. Divide the annualized expected cash inflows into the expected initial expenditure for the asset. …
  2. Subtraction method. Subtract each individual annual cash inflow from the initial cash outflow, until the payback period has been achieved.

What is MIRR formula?

The MIRR formula in Excel is as follows: =MIRR(cash flows, financing rate, reinvestment rate) Where: Cash Flows – Individual cash flows from each period in the series. Financing Rate – Cost of borrowing or interest expense in the event of negative cash flows.

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