T he payback method Miln Limited is considering investing in some new machinery. The following information has been prepared to support the project: £000 £000 Cost of machinery 20 Expected net cash flow: Year 1 1 2 4 3 5 4 10 5 [latex]\underline{10} [/latex] [latex]\underline{30} [/latex] Net profitability [latex]\underline{\underline{10} }[/latex] Required : Calculate the prospective investment’s payback period.

T he payback period is as follows: £000 Cumulative net cash flow: Year 1 1 2 (£1 000 + £4 000) 5 3 (£5 000 + £5 000) 10 4 (£10 000 + £10 000) 20 5 (£20 000 + £10 000) 30 T he investment will, therefore, have paid for itself at the end of the fourth year. At that stage £20,000 will have been received back from the project in terms of net cash flow and that sum would be equal to the original cost of the project.

Question 19.1: The payback method Miln Limited is considering investing in ...

Accounting for Non-Accounting Students

The payback method

Miln Limited is considering investing in some new machinery. The following information has been prepared to support the project:

	£000	£000
Cost of machinery		20
Expected net cash flow:
Year 1	1
2	4
3	5
4	10
5	$\underline{10}$	$\underline{30}$
Net profitability		$\underline{\underline{10} }$

Required:
Calculate the prospective investment’s payback period.

The "Step-by-Step Explanation" refers to a detailed and sequential breakdown of the solution or reasoning behind the answer. This comprehensive explanation walks through each step of the answer, offering you clarity and understanding.
Our explanations are based on the best information we have, but they may not always be right or fit every situation.

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

This Question has been Answered.