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CAPITAL INVESTMENT APPRAISAL
Payback Period
Payback period =
• Number of years it takes to recover the original investment
cost.
Example:
In order to undertake a project we need to buy a
machine at a cost of R10 000, which will last the 5 year
life of the project and will then be sold for R1 000 scrap.
It can be used to generate the following net receipts from
sales of the product: Year 1 = R3 000, Year 2 = R4 000,
Year 3 = R5 000, Year 4 = R2 000, Year 5 = R1 000
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