Example of Payback Period Method
Suppose a project costs Sh.80,000 and will produce the following cash inflows as:
Cash inflows Accumulated inflows
Inflows year 1 = 10,000 10,000
Inflows year 2 = 30,000 40,000
Inflows year 3 = 15,000 55,000
Inflows year 4 = 20,000 75,000
Inflows year 5 = 30,000 105,000
The Sh.80, 000 costs is recovered between year 4 and 5. Throughout year 5 (after year 4) Sh.5, 000 is (80,000 - 75,000) is required out the total year 5 cash flows of 30,000
Hence the PBP = 4yrs+ (5,000/30,000)
= 4.17 years