Payback Period Formula

Payback Period Formula

Payback period of a project can be calculated by the following formula.

A + B/C

A= previous year of year in which cumulative cash flow became negative

B= Cumulative Balance at year A

C= Total amount recover in a year (year in which total recovery took place)

Example

0          1200

1          400

2          500

3          400

Solution

Investment		($ 1200)
Year 1	$ 400	$ 800
Year 2	$ 500	$ 300
Year 3	$ 400	($ 100)

A = 2 Year

B= $ 300

C= $ 400

Put value in formula = A+ B/C

= 2 + 300/400

=2.75 Years