Project Duration Formula

Project Duration Formula

Duration of project is average time period of return from the project. Duration of project focuses more on the recovery of expected return than initial investment.

= ∑r x w/ ∑ r

Where

w= period

r= Present value of return

Duration of Project Assumption

1.    initial investment (negative cash flows are ignored)

2.    Takes into account all return from the project

3.    Subsequent negative cash flows are accounted for

4.    Period of return is used for weighting

Example

Year            Cash flows

0                 400

1                 200

2                 200

3                 300

Rate of return is 10%

Solution

Year (w)          Return             Discount          PV (r)     Return x period (r x w)

1                              200                   (1.1)^-1               182                      182

2                              200                   (1.1)^-2               165                      330

3                             300                    (1.1)^-3               225                      675

Total                                                                          572                      1187

= 1187/572

= 2.07 Years