project cash outflow is 200000.net cash inflow =
year 1 2 3 4 5
net cash inflow 99500 110000 96000 96000 68000
payback period = 1 yr + 100500\110000 =1.91 yrs
my question is how payback period is calculated from 1 yr and why not 3 yr.and 2 yr
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How to calculate payback period?
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The cummulative Cash flow in yr 2 is 209500 i.e.(99500+110000), bt total cash flow is 200000 only so Rs.200000 must be earned between yr 1 & yr 2 so yr 1 is taken & nor year 2 or 3.
how shall i take base yr is it depends upon cash outflow ?
110000 how come?
its not base year... assume that u have invested 2 lacs and estimating that u get cash inflow as u mentioned above during 5 years.. now u think how much time it take to recover ur investment of 2 lacs. in first year u get 95000, it means u need 105000 more to recover the amount u invested..in second year u r getting 110000.. mean u got 110000 in 12 month (2nd year). now calculate how much time it required to get 105000.. 110000/12= 9167.. means average monthly cashinflow is 9167.. now 105000/9167= 11 month(approx.).. payback period is 1 year 11 month.. u recover ur money in 1 year 11 month.. as per my knowledge.. please correct if i m wrong..
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