# What is the payback period for a \$16,700 investment with the following cash flows?

## What is the payback period for the cash flows?

The payback period is the amount of time required for cash inflows generated by a project to offset its initial cash outflow. There are two ways to calculate the payback period, which are: Averaging method. Divide the annualized expected cash inflows into the expected initial expenditure for the asset.

## What is the payback period for this investment?

The payback period disregards the time value of money. It is determined by counting the number of years it takes to recover the funds invested. For example, if it takes five years to recover the cost of an investment, the payback period is five years. Some analysts favor the payback method for its simplicity.5 мая 2020 г.

## How do you calculate payback period with uneven cash flows?

By substituting the numbers into the formula, you divide the cost of the investment (\$28,120) by the annual net cash flow (\$7,600) to determine the expected payback period of 3.7 years. Uneven cash flows occur when the annual cash flows are not the same amount each year.

## What is the payback period formula in Excel?

In the above excel sheet, you will see that the company earns the cumulative cash flow of Rs. 832 at the end of the fifth year. Hence, the amount yet to be recovered will be the initial cash flow invested (outflow) – total cumulative cash flows (inflow) = 900-832 = Rs.

## What is payback period with example?

Payback period in capital budgeting refers to the time required to recoup the funds expended in an investment, or to reach the break-even point. For example, a \$1000 investment made at the start of year 1 which returned \$500 at the end of year 1 and year 2 respectively would have a two-year payback period.

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## What is a good payback period?

The shortest payback period is generally considered to be the most acceptable. This is a particularly good rule to follow when a company is deciding between one or more projects or investments. The reason being, the longer the money is tied up, the less opportunity there is to invest it elsewhere.

## What is simple payback?

An energy investment’s Simple Payback is the time it would take to recover the initial investment in energy savings. If a clients pays \$1,500 for an energy project and they save \$1,500 a year in energy then their simple payback would be 1 year. Payback = Cost of project/ Energy savings per year.

## How do we calculate cash flow?

Cash flow formula:

1. Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure.
2. Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital.
3. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash.

## What are the capital budgeting techniques?

3 Techniques Used In Capital Budgeting and Their Advantages

• Payback method. Net present value method. …
• Payback Method. This is the simplest way to budget for a new asset. …
• Net Present Value Method. The Net Present Value (NPV) method is like the payback method; except for one important detail…. …
• Internal Rate of Return Method. …
• Conclusion.

## How do you calculate payback period from months and years?

The payback period for Alternative B is calculated as follows:

1. Divide the initial investment by the annuity: \$100,000 ÷ \$35,000 = 2.86 (or 10.32 months).
2. The payback period for Alternative B is 2.86 years (i.e., 2 years plus 10.32 months).
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## What is payback profitability?

Post payback profitability method

Under this method, the cash inflows after payback period is taken into account for considering the profitability of the project. It can be calculated in the following manners. Post Payback Profitability = Annual Cash Inflow (Estimated Life— Payback Period)

## How do you analyze the payback period?

So, the payback period is somewhere in third year. To calculate the fraction, we can simply divide the 120 (cumulative cash flow in year 3) by 220 (cash flow in year 4). Therefore the payback period equals: 3+120/220=3.55 years. Note that payback period can be reported from the beginning of the production.