Help:How to calculate payback into months!!!

Re:Help:How to calculate payback into months!!!

Here's a simple example.

The initial investment is £500 and there's an income of £200 per year from the project. The way I'd work it is to calculate that you the first two years gives you £400 and you've got £100 pounds to reach payback in some fraction of the third year. So to work out how many months in the third year it'll take to pay the £100

remaining months = (remainder to be paidback/income for year in question)*12

in this example

remaining months = 100/200 * 12 = 6 (months)

So total payback time is 2 years 6 months

Hope that helps

Chris

Re:Help:How to calculate payback into months!!!

Maybe there are no more marks in the exam for converting into months, but I'd still rather put the answer as, say, 2 years 5 months than 2.416666667 years - even more so if you're expected to use the answer in a memo type task.

Chris

Re:Help:How to calculate payback into months!!!

On the exam past papers the answears they have put are in months?

Re:Help:How to calculate payback into months!!!

I will use CJC's example and modify it a little to try to make it something that a typical student might be able to relate to from daily life.

Say you decide to

buy a car now for £500

and keep it for 5 years

in year 1 the net cash flow from having the car and not needing public transport etc is £200

in year 2 the net cash flow is £200

in year 3 the net cash flow is £200

in year 4 the net cash flow is £200

in year 5 the net cash flow is £200

When will you have paid back for the £500?

Now you paid £500...i.e -£500

At the end of one year you've recouped £200 i.e. -£500 + £200 = -£300

At the end of two years you've recouped another £200 i.e. -£500 + £200 +£200 = -£100

At the end of three years you've recouped another £200 i.e. -£500 + £200 +£200 +£200 = £100

So at some point during year 3 you paid back the £500.

You work this out by assuming the cash flow is even over the year and saying
Total amount still outstanding at the start of year 3 (£100) divided by the net cash flow in year 3
This is £100/£200 = half way through the year

So it takes 2.5 years to pay back the initial investment of £500.

Re:Help:How to calculate payback into months!!!

christheo
I would agree with you if you were working for me. Afterall the chances are that cash flows over the year will be uneven.
But I asked Les Nightingale that precise question and his answer was categorical. He will not give credit for between 2 and 3 years. He wants to see the point within the year when it is paidback.

So from an exam point of view do the extra calculation

sandy.hood@chichester.ac.uk

Re:Help:How to calculate payback into months!!!

The examiner for ECR