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Hi !
I have just done some practice q’s from BPP book on Payback period and came across two very similar questions with completely different approach in answers.
Q91
Assuming operational cash flows arise evenly over the year what is pay back period for this investment?
In here they add depreciation to cash flows.
Q148
What is the payback period for the machine
In here the depreciation is ignored although the information is given to calculate it.
What is the correct treatment?
Many Thanks
The questions are not similar.
In Q91, you are not given the cash flows. You are given the operating profits, which are after depreciation. Therefore you add back the depreciation in order to get the cash flows.
In Q148 you are give the cash flows, not the profits.
(The Paper F2 lectures on payback period will help you if you are still unsure, because this is revision of F2)
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