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

Payback period
Hi,
After some more reading it has clicked!!!!!!! Can't believe I was being so dozy!!
Thanks
Sally0 
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.
Dipak0 
Thanks
Thanks for your help.
Regards
Sally0