How does discounting affect the payback period?

Discounting reduces the value of future cash flows, so recovery takes longer. On a $100,000 investment at 10% WACC with annual CF = $30,000: undiscounted payback = 3.33 years; discounted payback = approximately 4.5 years.

If NPV < 0, can there still be a discounted payback period?

No. If NPV < 0, the present value of all cash flows never equals the initial investment. Discounted payback exists only when NPV is at or above zero.

Why is discounted payback still not ideal?

It still ignores cash flows after the recovery date. NPV and IRR remain superior for accept/reject decisions. Discounted payback is best as a supplementary risk measure.

Discounted Payback Period Calculator

Calculate the payback period using discounted cash flows. Corrects the undiscounted payback period by accounting for the time value of money. Always longer than undiscounted.

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Frequently Asked Questions

How does discounting affect the payback period?

If NPV < 0, can there still be a discounted payback period?

Why is discounted payback still not ideal?