Discounted payback period is used to evaluate the time period needed for a project to bring in enough profits to recoup the initial investment.
An initial investment of Rs.50000 is expected to generate Rs.10000 per year for 8 years. Calculate the discounted payback period of the investment if the discount rate is 11%.
Initial investment = Rs. 50000 Years(n) = 8 Rate(i) = 11 % CF = 10000
Discounted Payback Period (DPP)
|Year(n)||Cash Flow (CF)||Present Value FactorPV = 1/(1+i)n||Discounted Cash Flow (CF x PV)||Cumulative Discounted Cash Flow (CCF)|
Last period with a negative discounted cumulative cash flow (A) = 7 Absolute value of discounted cumulative cash flow at the end of the period (B) = 2878.04 Discounted cash flow during the period after (C) = 4339.26 Discounted Payback Period = A + (B / C) = 7 + (2878.04 / 4339.26) = 7.66 years