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. Valuation Analysis

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

    The process in which a business determines whether projects such ...
  5. Discounted Cash Flow - DCF

    A valuation method used to estimate the attractiveness of an ...
  6. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
Related Articles
  1. Delay In Retirement Savings Costs More ...
    Retirement

    Delay In Retirement Savings Costs More ...

  2. Understanding The Time Value Of Money
    Investing Basics

    Understanding The Time Value Of Money

  3. For IRAs, Time Is Money
    Retirement

    For IRAs, Time Is Money

  4. Valuing A Stock With Supernormal Dividend ...
    Markets

    Valuing A Stock With Supernormal Dividend ...

comments powered by Disqus
Hot Definitions
  1. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  2. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  3. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  4. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
Trading Center