The discounted payback period is a measure of capital investments used in capital budgeting to calculate the amount of time required to recoup the initial cost of the project. It is viewed as an extension of the standard Payback Period concept, as it takes into account the time value of money and allows for more accurate predictions to be made.

The discounted payback period formula and calculation involves using the expected future cash flows associated with a project and discounting these flows to the present day value. This differs from a regular payback period formula which does not use discounted expected cash flows. The discounted payback period calculation is made possible by leveraging the concept of the time value of money.

The concept of the time value of money suggests that the value of money today is higher than the value of money in the future. This is due to the fact that the value of money today can be invested and expanded, leading to further value in the future. Therefore, a discounted payback period calculation allows for the true recoupment time associated with a project to be identified, enabling a more accurate assessment of the investment to be made.

The main factor contributing to a shorter discounted payback period figure is a higher rate of return expected from a larger investment and the earlier receipt of cash. As a result, investors and organizations looking to invest in a specific project can look to see how long a project will take to cover its cost, under the discounted payback period formula.

The discounted payback period calculation offers a more comprehensive evaluation of a project's appropriateness, as it puts a greater emphasis on the time value of money associated with the project. Shortening a project's discounted payback period can increase the level of optimal return for the investor and, therefore, should be taken into account when considering a number of potential investments.