Home For AAT student members AQ 2013 AAT Level 3 (Level 6 in Scotland)

Payback Period - ECR

anniebabeanniebabe 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

Comments

  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    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.
  • sdvsdv Experienced Mentor Registered Posts: 585
    anniebabe wrote: »
    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 months
  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    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.
  • strangerstranger New Member Registered Posts: 12
    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 now
  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    Thanks, everythings a bit of a fog at the moment, will get there - hopefully for the exam in 4 wks.
  • emma123emma123 Well-Known Registered Posts: 108
    anniebabe wrote: »
    Thanks, everythings a bit of a fog at the moment, will get there - hopefully for the exam in 4 wks.

    Don't worry we'll wing it somehow!
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