# 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

595585yeat 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

595Yes I understood the first part - it was the year 4 that confused me.

Still dont get it properly.

Hope it will click soon.

12In 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

595108Don't worry we'll wing it somehow!