What is payback period?
The payback period helps to determine the length of time required to recover the initial cash flow outlay in the project or investment, simply it is the method used to calculate the time required the earn back the cash invested through the successful cash inflows
Why payback is important
The payback period is an effective measure of investment risk. The period with a shorter payback period has less risk than with the project or investment with longer payback period. The payback period is often used when liquidity is an important criterion to choose a project
Payback in capital budgeting
In capital budgeting, the payback period is the selection criteria, or deciding factor, that most business rely on to choose among potential capital projects. Small business and large alike tend to focus on project with a likelihood or faster, more profitable payback.
The template includes regular and discount payback
The regular payback period is number of years necessary to recover the funds invested without taking the time value into accounts
The discounted payback is number of years necessary to recover the funds invested taking into consideration the time value of the money
Key inputs in the green tabs
Fill the green cells only
Key outcome in the dark blue tabs
The inputs in the green cells will dynamically flow into the following below:
-Regular payback period
-Discounted payback period