I wanted some help working out the payback period for the example provided in attachment.
As you can see the initial investment of $16000 is recovered in years between 4 and 5. Just wanted to know how to workout the exact year.. maybe there is a formula for it?
Apr 6th 2009, 06:54 AM
As far as I see it, it's just basic business understanding of the payback period. As you see it, 1,000 is remaining at end of the 4th year. In 5th year, the expected net cash flow is 5,000. 5,000/12 ~= 416.67 per month. 1000 / 416.67 ~= 2.5 months.
So you can say, in the first quarter of the 5th year, the payback will be satisfied.