An illustrative presentation on how to calculate payback period of an investment using Microsoft Excel functions COUNTIF and HLOOKUP

1. Calculation of Payback Period
with Microsoft Excel 2010
- Murali Subramanian

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:
(Rs. Lakhs)
Year 1 2 3 4 5
Net cash inflow -79 147 657 789 791
Cumulative cash inflow -79 68 725 1514 2305
• 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)
= (1886 – 1514)
Cash inflow in the 5th year 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.
Investment 1886
(Rs. Lakhs)
Year 1 2 3 4 5
Net cash inflow -79 147 657 789 791
Cumulative cash inflow -79 68 725 1514 2305
Payback period 4.00 yrs 5.64 months