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Calculating Payback ARR NPV IRR and PVI
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Calculating Payback ARR NPV IRR and PVI
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Calculating Payback ARR NPV IRR and PVIPayback with uneven cash flows
Payback occurs at the end of a certain year
year Net cash flows Cash returned
1 24000 24000
2 22000 46000
3 24000 70000
4 30000 10000
5 30000
6 26000
7 12000
*by the end of year 4, all of the 100k cost is returned. Therefore, payback is 4 years
Payback with uneven cash flows
Payback occurs between 2 years
year Net cash flows Cash returned
1 24000 24000
2 20000 44000
3 20000 64000
4 30000 94000
5 30000
6 26000
7 12000
*payback occurs after year 4 but before the end of year 5
*we have 94k at the end of year 4 and need 6k more to reach 100k after year 4
*that 6k is 20% of the cash coming during year 5
*therefore payback occurs in 4.2 years
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