PBP Reciprocal

PBP expresses the profitability of a project in terms of years.  It does not indicate any return as measure of investment. The PBP reciprocal has been utilized to rectify the condition; however it is only of value whereas the pattern of cash flow is relatively consistent and whereas the life of the asset is at least twice the payback period of the asset.  The payback duration is expressed as:

Investment / Annual cash flows

This PBP reciprocal is often used as a guide to ascertain the discount factor in discounted cash flow calculations i.e. to approximate IRR.

Payback period reciprocal     = 1/ PBP * 100