Discounted Payback Period

AAA

DEFINITION of 'Discounted Payback Period'

A capital budgeting procedure used to determine the profitability of a project. In contrast to an NPV analysis, which provides the overall value of an project, a discounted payback period gives the number of years it takes to break even from undertaking the initial expenditure. Future cash flows are considered are discounted to time "zero." This procedure is similar to a payback period; however, the payback period only measure how long it take for the initial cash outflow to be paid back, ignoring the time value of money.

INVESTOPEDIA EXPLAINS 'Discounted Payback Period'

Projects that have a negative net present value will not have a discounted payback period, because the initial outlay will never be fully repaid. This is in contrast to a payback period where the gross inflow of future cash flows could be greater than the initial outflow, but when the inflows are discounted, the NPV is negative.

RELATED TERMS
  1. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s ...
  3. Discounted Cash Flow - DCF

    A valuation method used to estimate the attractiveness of an ...
  4. Valuation Analysis

    A form of fundamental analysis that looks to compare the valuation ...
  5. Capital Budgeting

    The process in which a business determines whether projects such ...
  6. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
Related Articles
  1. Retirement

    Delay In Retirement Savings Costs More In The Long Run

    The effects of compounding make it cheaper over the long term to save for retirement.
  2. Investing Basics

    Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.
  3. Retirement

    For IRAs, Time Is Money

    Don't procrastinate. The timing of your contributions can mean thousands more in savings.
  4. Markets

    Valuing A Stock With Supernormal Dividend Growth Rates

    If these calculations are off, it could drastically change the value of the shares.
  5. Forex Education

    Time Value Of Money: Determining Your Future Worth

    Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.
  6. Options & Futures

    Variable Annuity Benefits: What The Fine Print Won't Tell You

    Learn the truth before you strap yourself into these annuity "seat belts".
  7. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  8. Investing

    What Tech Companies Seeking Funding Must Overcome

    Tech companies face a unique set of challenges, including a need for timely responses to changes in technology and difficulty recruiting the right talent.
  9. Investing

    What's a Run Rate?

    Run rate is a term used to denote annualized earnings extrapolated from a shorter time frame. Management uses the run rate to estimate future revenues.
  10. Professionals

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center