Payback Period

Project has a NPV of 125M, project will last ten years, generating 85M each year in after tax CF. Cost of Capital is 8%. Calculate Payback period… Answer - 5.24 years How?

445M is the outlay in year 0. It will take 445M/85M=5.24 years to recover the outlay.

how do you get 445 , i keep getting 570?

oh never mind i got it, thanks

I am getting 570 too…what am I doing wrong?

aaahhh…the light bulb went off…570 is the PV of the cash flows and given NPV = 125, outlay = 445

That’s a good question! Like most of these, easy to solve but numerous places to slip up.

guys, I must be dense - how did you calculate the 445 outlay?

Once you discounted the annuity payment you need to deduct by the initial NPV to get the cash outlay for the project. keelim.

now I see it, thanks