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There are two formulae in Kaplan and both are kind of similar.
Payback Period when we have constant annual cashflows. To find Payback period:
Payback period = Initial Investment/Annual Cash inflowsCumulative discount factor or Annuity factor can be found
Cumulative Discount factor = Initial Investment/Annual Inflow.These both are same so it means that Payback Period (Non-discounted) = Cumulative Discount Factor?
Please help Professor.They are the same, but have two different purposes.
The payback period is the number of years it take to get back the original investment, and if there are constant annual flows then it will be the initial investment / annual cash flows.
The annuity discount factor is the factor giving the PV of equal annual cash flows.
Have you watched all of my free lectures?
No sir. I watch them month before exam because it revises all the concepts. Till then I read notes, have a tutor and If I have any query so I ask here.
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