Payback Period if annual cashflows vary?
Jaap de Jonge, Management Consultant, Netherlands
In case the annual cashflows are not the same, the formula is still valid.
Suppose the same project is costing $200.000, but now the annual cashflows are: $30.000 (yr 1), $40.000 (yr 2), $50.000 (yr 3), $40.000 (yr 4), $20.000 (yr 5), $20.000 (yr 6), and $50.000 (yr 7).
After 6 years the total of all cash inflows equals the costs (investments) in the project. Therefore the Payback Period of our project is 6 years.