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Payback Period Calculation. The Payback Period is the time it takes an investment to generate enough cash flow to pay back the full amount of the investment. It is calculated by calculating the time period over which the Initial Capital investment is returned by the business and the business by itself starts generating more capital.
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That is the profitability of each year is fixed but the valuation of that particular amount will be placed overtime period. When the cash flow remains constant every year after the initial investment the payback period can be calculated using the following formula. So during calculating the payback period the basic valuation of 25 lakh dollar is ignored over time.
To calculate it you would divide the investment.
PP Initial Investment Cash Flow For example if you invested 10000 in a business that gives you 2000 per year the payback period is 10000 2000 5. The payback period is the amount of time usually measured in years it takes to recover an initial investment outlay as measured in after-tax cash flows. The trick is to make an assumption that the cash flows arise evenly during each period. Applying the formula to the example we take the initial investment at its absolute value.
