1. Investment Appraisal - Payback 3.3 Decision-making techniques

2. What you need to know a) Simple payback

3. Concept links Payback Cash flowInvestmentRisk & returnNPVARR

4. What is Investment Appraisal?

5. What is the Payback Period?

6. How to Calculate Payback… Identify the net cash flows for each period (e.g. year) Keep a running total of the cash flows

7. A Simple Example of Payback A manufacturer of chocolates is planning to invest £500,000 in a new, state-of-the-art chocolate-moulding machine. This will enable the business to increase production capacity and revenues, generating significant extra profit.

8. The Chocolate Moulding Machine: Investment Numbers YearCash Flow Detail Cash Flow £ Cumulative Cash Flow Payback? 0Investment (cash outflow)(500,000) No 1Net Cash Inflows100,000 2Net Cash Inflows150,000 3Net Cash Inflows175,000 4Net Cash Inflows150,000

9. Calculating the Precise Payback Period 3 Years + the part of the 4 th Year when Payback was achieved 3 +

10. Benefits of Using Payback Period…

11. Drawbacks of Using Payback Period…