# Payback Period - ECR

Registered 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

• 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.
• 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
• 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.
• Registered Posts: 12 Regular contributor ⭐ ? ⭐
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
• Registered Posts: 595
Thanks, everythings a bit of a fog at the moment, will get there - hopefully for the exam in 4 wks.
• 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!