Payback Period – Basics, Formula, Calculations in Excel (Step by Step) [Video]

Payback Period Tutorial – Chapters 00:00 – Introduction 01:00 – What is Payback Period? 02:40 – Payback Period Formula & Calculation (Equal cash flows) 04:23 – Payback Period Formula & Calculation (Unequal cash flows) 09:10 – Using Payback Period to Compare Multiple Projects 10:55 – Limitations of Payback Period In this video, we will discuss one of the methods of Capital Budgeting, i.e., Payback Period, along with how it works, its calculations, and its limitations. What is Payback Period? Payback Period is the time taken to recover a business’ initial investment. In simple terms, it refers to the time taken by a project to reach a level where there is no loss no profit i.e. breakeven point. Formula for Payback Period = Initial Investment/Net Annual Cash Inflow Limitations of Payback Period: 1. Time Value of Money is neglected 2. The amount of cash inflows generated post the payback period is …