Calculating payback

Claudine71

In task 1 do I take away the scrap value from the total I get at the end of year 5 or do I take it away from the initial investment and then work out the payback period?

shafaqatullah

For payback, scrap value can be available or recovered as cash when you will scrap it, may be after 5 years, not at the time of investment. Hence, don't take away from initial investment to calculate payback period. Question is: How much time it will take to recover your initial cash outflow which is £450,000 for A and £100,000 for B, not £430,000 for A and £90,000 for B. I hope this clarifies.