Payback period - TIDY Ltd

Sally5065
Sally5065 Feels At HomeRegistered Posts: 48
Hi,

This is my first time on the AAT forum.

Could anyone explain to me how to calculate a payback period. I am working through Tidy Ltd and seem to be stuck on this last bit!!!

Many Thanks

Sally

Comments

  • Sally5065
    Sally5065 Feels At Home Registered Posts: 48
    Payback period

    Hi,

    After some more reading it has clicked!!!!!!! Can't believe I was being so dozy!!

    Thanks

    Sally
  • Dipak Thanki
    Dipak Thanki Well-Known Registered Posts: 135
    It's straight forward really,

    The way I do is:

    £000
    Net Cash flows:
    Cumulative :

    In the Net cash flows, you directly get the ones from the NPV/NPC table, and then add the next net cash flow.

    For example:

    Year 0 being, £500 this is most likely to be capital expenditure, so you would use
    (-£500), therefore the Cumulative cash flow being (-£500).
    Year 1 being £400. You add the £400 to the (-£500), making the Cumulative cash flow for year 1 (-£100).
    Year 3 being £300.

    £000
    Net Cash flows: -500 400 300
    Cumulative: -500 -100 200

    You then see where the net cash flow becomes positive. i.e £300. You then take the cumulative value from the year before (-£100) and divide it by 300.

    When dividing DO NOT use the 100 as a negative.

    So: 100/300 = 0.33* x 12 = 4

    Always round up, when finding out how many months it requires.

    Payback period = 1 year and 4 months.

    Hope this helps :S.

    Dipak
  • Sally5065
    Sally5065 Feels At Home Registered Posts: 48
    Thanks

    Thanks for your help.

    Regards

    Sally
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