PAY BACK PERIOD - PBP

[basit_namdar]

Ok firstly u need to understand that there are 2 types of PBP

1. Simple
2. Discounted

In discounted PBP we calculate the PV of each cash flow and than use these figures to calculate PBP.

YEAR 1 15000 when discounted at 5% for 1 year is 14285.7
YEAR 2 12000 when discounted at 5% for 2 years is 10884.35
YEAR 3 8000 when discounted at 5% for 3 years is 6910.7
YEAR 4 34000 when discounted at 5% for 4 years is 27971.8
YEAR 5 55000 when discounted at 5% for 5 years is 43093.9

Now when we calculate PBP than 75000 - 14285.7 - 10884.35 - 6910.7 - 27971.8 = 14947.45

14947.45/43093.9 * 12 = 4.16

in other words intial investment will be recovered in 4 years and 4 months under discounted PBP