Enter the last period with a negative discounted cash flow, the absolute value of the discounted cumulative cash flow and the end of that period, and the discount cash flow during the following period to determine the discounted payback period.
Discounted Payback Period Formula
The following formula is used to calculate a discounted payback period.
DPP = A + B/C
- Where DPP is the discounted payback period
- A is the last period with a negative discounted cash flow
- B is the absolute value of the discounted cash flow at the end of period A.
- C is the discounted cash flow after period A.
Discounted Payback Period Definition
A discounted payback period is defined as the time it takes to payback an investment using discounted cash flows.
Discounted Payback Period Example
How to calculate a discounted payback period?
- First, determine A.
Determine the last period with a negative discounted cash flow.
- Next, determine B.
Determine the absolute value of the discounted cash flow at the end of period A.
- Next, determine C.
Determine the discounted cash flow after period A.
- Finally, calculate the discounted payback period.
Calculate the DPP using the equation above.
FAQ
A discounted payback period is a type of payback period that uses discounted cash flows to calculate the time it takes an investment to payback it’s initial cash flow.
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