# Pay Back Period

Updated on August 8, 2016

## Formula

THe formular is: Total cash outlay / Annual cash inflow

## Example

A project requires an capital of \$500. yeild \$125 annually for 7 years. THe pay back period is:

cash outlay / annual cashinfkow

cash outlay = \$500

Annual cash inflow = \$125

\$500 /\$125 = 4 years

That means in 4 years time the concern willstart regaining the amount invested. Within 4 years \$500 will be made.

## In Constant

For 7 years the person will make \$875 where cash flow is not constanmt. The pay back period can be assummed to be dividing the initial expenditure by the average of cash inflow.

## Futher Example.

A purchased car for commercial for \$10,000 , estimated life being 4 years. It assumed the car earn as follows:

Year 2016 = \$4000

" 2017 = \$5000

" 2018 = \$4000

" 2019 = \$3000

The pay back period is :

cash out flow / average cash inflow

\$4000 + \$5000 + \$4000 + \$3000 / 4 =\$4000

Pay back period = \$10000 / \$4000 = 2.5 = 2 1/2 years.

So in 2 1/2 years A will receive his money

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