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NEHBY – payback period

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBL Exams › NEHBY – payback period

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Ken Garrett.
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  • September 3, 2021 at 11:48 am #634134
    manishatai
    Member
    • Topics: 35
    • Replies: 21
    • ☆☆

    Hi. I am struggling to calculate the payback period for NEHBY question (past ACCA exam paper).

    Through cumulative net cash flow I have got the payback period to 5 but cannot work out how many months?

    Initial investment Net cash flows Discount factor Present value

    Year 0 (5) 1 (5)
    Year 1 (0·5) 0·926 (0·463)
    Year 2 0·5 0·857 0·4285
    Year 3 1 0·794 0·794
    Year 4 1·5 0·735 1·1025
    Year 5 2 0·681 1·362
    Year 6 2 0·630 1·26
    Year 7 2 0·583 1·166
    ––––––
    NPV 0·65

    Thank you!!

    September 3, 2021 at 12:47 pm #634145
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10198
    • ☆☆☆☆☆

    At the end of year 5 the net cash flow (without discounting) is -0.5.

    To make this zero another 0.5 inflow is needed. Year 6 has 2 inflow, so the 0.5 inflow needed is calculated as a quarter of this. Therefore PB = 5.25

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