The payback rule as the simplest capital budgetine technique. Unfortunately. Excel has no function to directly cakulate le in order to calculate the payback period and we must program Excel to perfrom the calculation. We will show you three ways to calculate the payback period. Suppose we have a project with the following cash flows. What is the payback period for the project? Should the project be accepted? Cash flow (30,000 5 + 0 1 2 8,000 10,000 11.000 17,000 12.000 4 14 15 16 17 18 Maximum payback years 19 in the first method, we will calculate the cumulative cash flows for the project by simplyadding the cash flows each year as follows: 20 21 22 0 1 2 24 25 Cumulative cash flow $ (30,000 (22.000 (12.000 11.000 16,000 28,000 Next, we will calculate the payback period as a sa fractional number of years. We know that the payback period wil occur during the first year that the cumulative cash flows become positive. So, we need to test each year to determine the cumulative cash flows for the previous year were negative and the cumulative cash flows for the current year are positive To do this, we will use a nested function. The lf function will allow us to test this, but the IF function will perform only one logical test. To test both cash flows, we will insert an AND 29 function in the If function in the following statement, the result will be zero if the conditions are not met Payback cakulation + 0 1 2 3 4 34 35 7 36 10 39 Rather than searching through the payback calculation table to locate the payback period for the project, we will use another formula to automatically pull the payback period into a new cell We will then set up another formula in a different cell that will tell us whether to reject or accept the project based on the payback rule. Of course, the project could never pay 40 back, so we will include this possibility in our formula. The payback period and the decision on the projectare: 41 42 Payback period for project Accept or reject