Generalized Method of Determining the Payback Period for both Conventional and Non-conventional Cash Flows: Ready-to-Use Excel Formulas and UDF

18 Pages Posted: 30 Dec 2016

Date Written: December 25, 2016

Abstract

The paper presents a generalized algorithm of determining the payback period for either a conventional or a non-conventional cash flow of an investment project. A non-conventional cash flow may have more than one payback periods, if an investor makes additional investments during the operating phase of the project. I give numeric examples and explain in detail the calculation of the payback period with Excel formulas, as well as with Excel user-defined function written in VBA. In conclusion, I give some thoughts on why the payback period can be a useful performance measure in capital budgeting in spite of the criticisms against it in academic literature on the ground that it is not compatible with the NPV criterion.

Keywords: payback period, investment project, capital budgeting, nonconventional cash flow, financial modeling, Excel, VBA, modified cumulative cash flow

JEL Classification: M10, M40, M41, G31

Suggested Citation

Cheremushkin, Sergei Vasilievich, Generalized Method of Determining the Payback Period for both Conventional and Non-conventional Cash Flows: Ready-to-Use Excel Formulas and UDF (December 25, 2016). Available at SSRN: https://ssrn.com/abstract=1982827 or http://dx.doi.org/10.2139/ssrn.1982827

Sergei Vasilievich Cheremushkin (Contact Author)

Independent ( email )

No Address Available

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