1. Calculation of Payback Period with Microsoft Excel 2010
DR ABHIJIT GANGULY

2. Introduction
Payback period is the time in which the initial cash outflow of investment is expected to be recovered from the cash inflows generated by the investment.
This presentation illustrates the method of calculating payback period with the aid of Excel functions of COUNTIF and HLOOKUP

3. Example
Let us consider an initial investment of Rs.1886 lakhs now (Year 0)
Let the net cash inflows through years 1 to 5 be:
We can see that the investment would be paid back in the 5th year. The payback period would be 4 years and 5.64 months. The fraction of the year is calculated as :
(Investment – Cumulative Cash inflow in 4th year)
Cash inflow in the 5th year
(1886 – 1514)
791 =

4. Using Microsoft Excel functions
Open a new spreadsheet
Enter the initial investment of 1886 in cell B1
Enter Year numbers 1 to 5 in cells B3 to F3
Enter the annual cash inflows through years 1 to 5 in cells B4 to F4
The cumulative cash inflows in years 1 to 5 can be computed in cells B5 to F5
Enter the formula =COUNTIF(B5:F5,"<"&B1) in cell B7. This will return the value 4, indicating the years
Enter the following formula in cell D7:
=(B1-HLOOKUP(COUNTIF(B5:F5,"<"&B1),B3:F5,3,0))/(HLOOKUP(COUNTIF(B5:F5,"<"&B1)+1,B3:F5,2,0))*12
This will return the value 5.64, indicating the fraction of the 5th year in months

5. The spreadsheet
Here is the spreadsheet as an embedded object.