Discounted Payback Period Chapters
00:00 Introduction
00:17 Payback Period Refresher
06:05 Limitation of Payback Period - Time Value of Money in Payback Period
07:36 Understanding Discounted Payback Period
10:02 Calculating Discounted Payback Period
In this video, we discuss one of the methods of Capital Budgeting, Discounted
Payback Period, along with how it works in project evaluations, its calculations,
and its uses.
What is a Discounted Payback Period?
Discounted Payback Period is the time taken to recover a business’ initial
investment. The calculation is done after taking into account the time value of
money and discounting future cash flows.
Formula = Year Before the Discounted Payback Period Occurs + (Cumulative Cash Flow in Year Before Recovery / Discounted Cash Flow in Year After Recovery)
Uses of Discounted Payback Period:
1. Considers Time Value of Money
2. Used mostly when an investor has comparable projects
3. The shorter the discounted payback period, the sooner the project
generates cash inflows to recover the initial investments.
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