1. What is Discounted Payback Period?

The Discounted Payback Period is the time required to recover the initial investment in present value terms, considering the time value of money. It's a capital budgeting metric that helps evaluate investment profitability.

2. How Does the Calculator Work?

The calculator uses the Discounted Payback formula:

Where:

• Year before recovery — Last full year before full recovery
• Remaining cost — Initial investment minus cumulative discounted cash flows up to that year
• Discounted cash flow — Cash flow in the recovery year discounted to present value

Explanation: The formula accounts for the time value of money by discounting future cash flows.

3. Importance of Discounted Payback

Details: Discounted payback helps investors understand how long it takes to recover their investment in present value terms, providing a more accurate picture than simple payback period.

4. Using the Calculator

Tips: Enter the initial investment amount, discount rate (as percentage), and comma-separated expected annual cash flows. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: Why use discounted payback instead of regular payback?
A: Discounted payback accounts for the time value of money, giving a more accurate measure of when an investment becomes profitable.

Q2: What's a good discounted payback period?
A: This depends on the industry and investor preferences, but generally shorter periods (3-5 years) are preferred.

Q3: How does discount rate affect the result?
A: Higher discount rates will generally result in longer payback periods as future cash flows are discounted more heavily.

Q4: What are the limitations of this metric?
A: It ignores cash flows beyond the payback period and doesn't measure overall profitability.

Q5: When is this most useful?
A: For projects where liquidity and quick recovery of investment are primary concerns.