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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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