Payback period

In this lesson

1. 0:00 Payback period: concept and principles
2. 1:41 Basic payback calculation worked example
3. 5:15 Discounted payback period and time value of money
4. 7:09 Discount factors and present value formulas
5. 12:01 Discounting cash flows: practical application
6. 16:09 Annuities and perpetuity explained
7. 19:22 Comparing discounted vs non-discounted payback

About this lesson

You'll work through a practical example calculating payback to the nearest month, understand its key advantages (simplicity and quick project screening) and limitations (it ignores cash flows after payback and doesn't account for the time value of money), and explore how discounted payback period addresses some of these shortcomings. The lesson then builds your understanding of discounting and present value concepts, which are essential for applying the discounted payback method. You'll recap compounding and discounting principles, learn how to use present value tables and discount factors, and see how to calculate the present value of single cash flows, annuities, and perpetuities. These concepts directly support the discounted payback calculation, which incorporates the timing of cash flows into your investment decision. By the end of this lesson, you'll be able to distinguish between standard and discounted payback periods, apply both methods to real investment scenarios, and understand when each approach is most useful. You'll also see how discounted cash flows lead to better project comparisons and more informed business decisions. This content is directly relevant to investment appraisal topics across ACCA and CIMA qualifications, particularly in modules covering financial management and performance management.

Duration: 21m