Discounted payback period / Adjusted payback period

Last updated: 17.03.2016

Discounted payback period (or Adjusted payback period) is the method used to evaluate the investments. It was developed to overcome the biggest disadvantages of traditional payback period method that it ignores time value of money and is possibly calculated based on profit, not cash-flow. Discounted payback therefore comes out from the same formula, but discounts the annual relevant cash-flow to present value.

 

Calculation formula

PV of investment / PV of annual differential cash-flow

 

However, other payback period disadvantages, except for the use of cash-flow and discounting it, remain.



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