hello

System

hello, can anybody explain to me the pay back period and how to calculate because i can't understand it even the formula,
thanks

System

Re:hello

Payback is the time it takes to recover the cost of a new project.

The best way for me to explain payback is to give you an example:

Cost of equipment : 700

Net income per year : 200

In the question you will be told to presume that income is spread evenly across the year

So net income at the end of year 1 = 200
Net income at the end of year 2 = 200 +200 = 400
Net income at the end of year 3 = 400 + 200 = 600
Net income at the end of year 4 = 600 + 200 = 800

So from this we know that the cost of 700 is paid off somewhere between year 3 and 4.

At the end of year 3 we need an extra 100 (700-600). We know that we will receive 200 in the whole of the following year, so we work out the proportion of the year it will take to recoup 100.
ie: 100/200 = 0.5 years

So in total it will take us 3.5 years to recoup our outlay.

Does this make sense?

System

Re:hello

thanks very much for the explaination. :thumbup: