Payback and Net Present Value..Im' stuck!

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I am stuck on a simulation exam question given to me..<BR><BR>Initial investment is 300, 12% present value factor<BR><BR>Sales revenue YEAR1 (300), yr2 600, yr3 700, yr4 800, yr5 700 <BR><BR>Relevant costs excluding depreciation YEAR2 500, yr3 570, yr4 660, yr5 600<BR><BR>12 % present value factor YEAR1 0.893, yr2 0.797, yr3 0.712, yr 4 0.636, yr5 0.567 <BR><BR>What do I do with the second information row called relevant costs excl. depr'n? Without it I would know what I am doing, but now I am stuck as I am not sure what do I use that information for?<BR><BR>A) need to calculate payback period (if Im right its 2.5 yrs)<BR>B) net present value<BR><BR>I would appreciate if somebody could advise me on this question! <img src="i/expressions/face-icon-small-smile.gif" border="0"> PLEASE HELP ME!!!!

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Payback and Net Present Value..Im' stuck!

    OK. The sales revenue is the income generated each year (obviously). The "other relevant costs" are the expenses incurred. In order to get the net cash flow you simply deduct one from the other.<BR><BR>So in year 2 the net cash flow is (600 - 500) 100; in year 3 it is (700 - 570) 130 and so on.<BR><BR>These are the amounts that you then use to determine the payback period, or discount using the factors given to get the NPV.<BR><BR>Is that clear?<BR><BR>Graham
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Payback and Net Present Value..Im' stuck!

    Oh thank you so much, I did think it, but I wasn't sure 100%! It seems so straight forward now. Sometimes I just get stuck on such easy things and it is all because it has been worded differently - if you know what I mean... <img src="i/expressions/face-icon-small-smile.gif" border="0"> thank you again !

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