Component |
Description |
Initial Investment |
The initial amount invested in a project. |
Annual Cash Inflows |
The annual cash inflows generated by the project. |
Discount Rate |
The rate used to discount future cash flows to their present value. |
Discounted Payback Period |
The time it takes to recover the initial investment, considering the time value of money. |
Formula |
Calculate the discounted cash inflows for each year and determine the cumulative total until it equals the initial investment. |
Purpose |
Used to evaluate the profitability and risk of an investment project by considering the time value of money. |