1/20/2024 0 Comments Formula for cash flowThese two methods can easily calculate the payback period. Both of these methods are fairly easy to use. To calculate the payback period with uneven cash flow, we have shown two different methods including the conventional formula and by using the IF function. To get the total payback period, you need to add the total number of negative cash flow years and fractional period while approaching the conventional method.Otherwise, you can’t get an accurate answer. To calculate the payback period with uneven cash flows, the cumulative cash flow is a must.Read More: How to Create Cash Flow Statement Format in Excel There we have our required payback period with uneven cash flows.It will show the required period where it matches the criteria.Then, drag the Fill Handle icon down the column.You will get blank in cell E6 because it doesn’t match the criteria.After that, press Enter to apply the formula.When the conditions meet, the IF function returns the value using the given formula. Here, both cells D6 and D7 are less than zero. If both conditions meet then it will go to the next step. These two criteria are in the AND function. IF(AND(D60),B6+(-D6/C7),””): First, the IF function checks whether the value of cell D6 is less than zero and the value of cell D7 is greater than zero. Then, write down the following formula in the formula box.After that, using these values, we will create the cumulative cash flows column. As our investment is cash outflow, so, we denote it as a negative value. To understand the method, follow the steps.įirst, we need to create the dataset including cash flows and cumulative cash flows. In this method, we will calculate step-by-step, after that we will get the payback period with uneven cash flow. Our first method is based on using the conventional formula for calculating the payback period with uneven cash flow. These two methods include a conventional formula for calculating the payback period and the IF function. To calculate the payback period with uneven cash flows, we have found two different methods through which you can have a clear idea. When the cash inflows are uneven, you need to calculate the cumulative cash flows for each period and then apply the following formula.Ģ Easy Methods to Calculate Payback Period with Uneven Cash Flows The formula to calculate the payback period can be established by knowing the behavior of cash flows whether it is even or uneven. Investment with a short payback period makes the profit funds available to invest in another business. Finally, it also provides a platform to reinvest and earn a profit in a new project. You can also get to know the liquidity of any investment. It would provide a good ranking of projects which would return an early profit. The period can also indicate how the project cash inflows are. It can identify the risk inherent in a project. First of all, the calculation of the payback period is very simple and user-friendly. There are some major advantages of using the payback period. By using the break-even point, you may know the point of time when you recover your initial investment and finally, start to see the profit. In the payback period, the break-even point is another vital element. So, we need more time to recover your initial investment compared to the short time payback period. Whereas, the long-time payback period gives you a higher cash inflow in the later stage. As a result, you can recover your initial investment quite easily and gain some profit. For a short time payback period, you need to have a higher cash inflow in the initial stage. There are two types of payback periods – short time payback period and long time payback period. At the same time, a payback period will help you to evaluate the risks of the project. The period shows you the exact time through which you can recover the initial costs. It would help if you recover the primary investment and make a profit. The payback period can be defined as the amount of time required to exceed the primary investment by using the cash inflows generated by the primary investment. The basic difference between even and uneven cash flows is that in even cash flow, the payment will be equal over a given period whereas, the payment will be unequal in terms of uneven cash flows. For example, a series of $2000, $5000, $3000, and $2500 over 4 different years can be defined as uneven cash flows. Here, the cash flow changes from time to time. Uneven cash flows can be defined as the series of unequal payments paid over a given period. Payback Period with Uneven Cash Flows.xlsx
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