Payback Period  ECR
anniebabe
Experienced MentorRegistered Posts: 595
Hi Guys
Can anyone explain how to calculate a part year on the payback period, looking at it in the Osborne book and somehow its not sinking in at the moment.
Many thanks
Can anyone explain how to calculate a part year on the payback period, looking at it in the Osborne book and somehow its not sinking in at the moment.
Many thanks
0
Comments

do you just divide the cash flow by 12 months ? and the remaining figure is the money that is left ? not sure why this has confused me.0

Hi Guys
Can anyone explain how to calculate a part year on the payback period, looking at it in the Osborne book and somehow its not sinking in at the moment.
Many thanks
yeat 0 Investment  150,000
year 1 Net cash inflow + 30,000 120,000 (investment recovered 30K)
year 2 Net cash inflow + 40,000 80,000 (investment recovered 70K)
year 3 Net cash inflow + 50,000 30,000 (investment recovered 120K)
Year 4 Net cash inflow + 60,000
from the above we can see that we have recovered £120,000 in 3 years
We now need to recover 30K from year 4
Assuming that the net cash inflow is constant throughout the year then it will take 6 months in year 4
calclulations  (30,000 / 60,000 x 12 months)
therefore payback = 3 years 6 months0 
Thanks SDV
Yes I understood the first part  it was the year 4 that confused me.
Still dont get it properly.
Hope it will click soon.0 
In Year three , how much outflow left to recover : £30,000
In Year four, how much incoming :£60,000
Assuming inflow is spread evenly, you do not need a whole year 4 to get your outflow, you just need half of year 4, hence this is how you do the calculation regarding year 4 :
£30,000/£60,000 X12months = 6 months
Hope it will click now0 
Thanks, everythings a bit of a fog at the moment, will get there  hopefully for the exam in 4 wks.0