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Payback Period Excel Templates

Payback Period Excel Templates

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Payback Period Excel Templates

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  1. Payback Period Excel Templates The payback period is a stand-alone tool to compare different investments. It is quite useful, comprehensive, and has no explicit criteria for decision-making. The payback period is typically performed in capital budgeting along with the Internal Rate of Return (IRR) and Return of Investment (ROI). This article will detailed payback period Excel Templates. The Payback Method The payback period is the time required for the investment to be recovered. This metric allows companies to compare several investment opportunities; the project that returns its investment in the shortest time is likely to be chosen. It is widely used when liquidity is an essential criterion to choose a project. The Payback Period is kind of similar to Breakeven Analysis, but instead of covering fixed costs, it takes into account the time required to recoup an investment. Because of its nature, the payback period is often used initially to analyze an investment and could be understood without the need for technical knowledge. Simple Payback Method vs. Discounted Payback Method Simple Payback Method The payback period is expressed in years and calculated by dividing the cumulative net cash flow from the initial cost of investment. This method identifies the break-even point between profit and paying back invested money for a given process. This payback method does not consider the time value of money. eFinancial Models Zurich, Switzerland 8000

  2. Payback Period Excel Templates Discounted Payback Method This method project the payback period more accurately because it incorporates the time value of money. The projected cash flows are discounted to its present values based upon the company’s cost of capital. Drawback of Payment Method 1. Though the payback period exhibit how long it takes to recoup an investment, it does not show how much is the return on investment. 2. Cash flows after the payback period become irrelevant, therefore ignoring the profitability of a project. Though the payback period is pretty straightforward to calculate, it is still best to use pre-defined templates. This calculation is often included along with other templates such as startup, investments, and so on. There are many payback period excel templates you could find online, you just have to choose which one best fits your needs. Click here for more selection of financial model templates. Conclusion: An investment with the shortest payback is likely to be accepted If you are bound to choose with alternative investment opportunities, the quickest way to know whether to accept an investment proposal is through the payback period. Ideally, an investment with the shortest payback period is most likely to be accepted. But since profitability is ignored, this metric is best used along with ROI or other investment metrics. eFinancial Models Zurich, Switzerland 8000