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# Payback period - TIDY Ltd

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

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

0

## Comments

48Hi,

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

Thanks

Sally

135The 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

48Thanks for your help.

Regards

Sally