Hi guys,
I’m using the Schewer 2016 level 1 book for corp fin. I’m studying payback periods (PBPs) on p. 8 of book 4, but am having some issues with the PMP example.
Project A
Year 0 1 2 3 4
Net CF -2000 1000 800 600 200
Cumulative NCF -2000 -1000 -200 400 600
PBP = 2 + (200/600) = 2.33
200 in PBP calculation comes from Net CF year 4, 600 from cumulative NCF year 4.
So where are the numbers in the PBP calculation in project B coming from?
Project B
Year 0 1 2 3 4
NCF -2000 200 600 800 1200
Cumulative NCF -2000 -1800 -1200 -400 800
PBP = 3 + (400/1200) = 3.33
I initially wrote my equation as: 3 + (1200/800)