Create a cumulative discounted cash flow column.
Calculation of Discounted Payback Period, the bloomingdale coupon code 2015 calculation for discounted payback period is a bit different than the calculation for regular payback period because the cash flows used in the calculation are discounted by the weighted average cost of capital used as the interest rate and.
Therefore, after receipt of the fourth payment, which is discounted to 854.80, the project will have a positive balance.Year n, cash Flow.Here are the steps you use to calculate discounted payback period:.The third, and perhaps most important, flaw is that calculating the discounted payback period does not really give the financial manager or business owner the information needed to make the best investment decision.Assume that Company A has a project requiring an initial cash outlay of 3,000.The net present value aspect of the discounted payback period does not exist in a payback period in which the gross inflow of future cash flows are not discounted.For this purpose the management has to set a suitable discount rate.Calculate the discounted payback period of the investment if the discount rate.Example, an initial investment of 2,324,000 is expected to generate 600,000 per year for 6 years.By Rosemary Peavler, updated October 18, 2016, payback period is a quick and simple capital budgeting method that many financial managers and business owners use to determine how quickly their initial investment in a capital project will be recovered from the project's cash flows.With the assumption of a large cash outflow to begin the project, future discounted cash flows are net against the initial outflow.It will cost 90,000 to buy and install solar panels. .In addition to the first two flaws, the business owner also has to guess at the interest rate or cost of capital.If the capital project lasts longer than the payback period, any cash flows the project generates after the initial investment is recovered are not considered at all in the payback period calculation.
Example of Discounted Payback Period.
Here is an example of a discounted cash flow : Imagine that the first year's cash flow from a project is 400 and the weighted average cost of capital.