What is simple payback?

The time taken for a project to recover its initial investment from its net cash inflows.

What is the first step in calculating the payback period?

Calculate cumulative cash inflows for each period.

After calculating cumulative cash inflows, how do you determine when payback occurs?

Identify the period where cumulative inflows equal or exceed the initial investment.

If payback occurs partway through a year, how is the exact payback time determined?

Interpolate to find the exact time within that year when cumulative inflows equal the initial investment.

State the formula for calculating payback period when payback occurs mid-year.

Payback = Years before full recovery + (Remaining amount to recover ÷ Cash inflow in recovery year).

Calculate the payback period when years before full recovery = 9 years, remaining amount to recover = £39,000, cash inflow in recovery year = £65,000.

Payback period = 9 + (39000 ÷ 65000) = 9.6 years.

Edexcel A-Level Business 9BS0

Meeting Customer Needs

Topic overview The market Market research Market positioning

The Market

Topic overview Demand Supply Markets Price elasticity of demand Income elasticity of demand

Marketing Mix and Strategy

Topic overview Product/service design Branding and promotion Pricing strategies Distribution Marketing strategy

Managing People

Topic overview Approaches to staffing Recruitment, selection and training Organisational design Motivation in theory and practice Leadership

Entrepreneurs and Leaders

Topic overview Role of an entrepreneur Entrepreneurial motives and characteristics Business objectives Forms of business Business choices Moving from entrepreneur to leader

Raising Finance

Topic overview Internal finance External finance Liability Planning

Financial Planning

Topic overview Sales forecasting Sales, revenue and costs Break-even Budgets

Managing Finance

Topic overview Profit Liquidity Business failure

Resource Management

Topic overview Production, productivity and efficiency Capacity utilisation Stock control Quality management

External Influences

Topic overview Economic influences Legislation The competitive environment

Business Objectives and Strategy

Topic overview Corporate objectives Theories of corporate strategy SWOT analysis Impact of external influences

Business Growth

Topic overview Growth Mergers and takeovers Organic growth Reasons for staying small

Decision-Making Techniques

Topic overview Quantitative sales forecasting Investment appraisal Decision trees Critical Path Analysis

Influences on Business Decisions

Topic overview Corporate influences Corporate culture Shareholders versus stakeholders Business ethics

Assessing Competitiveness

Topic overview Interpretation of financial statements Ratio analysis Human resources

Managing Change

Topic overview Causes and effects of change Key factors in change Scenario planning

Globalisation

Topic overview Growing economies International trade and business growth Factors contributing to increased globalisation Protectionism Trading blocs

Global Markets and Business Expansion

Topic overview Conditions that prompt trade Assessment of a country as a market Assessment of a country as a production location Reasons for global mergers or joint ventures Global competitiveness

Global Marketing

Topic overview Marketing Niche markets Cultural/social factors

Global Industries and Companies

Topic overview The impact of MNCs Ethics Controlling MNCs

Decision-Making Techniques

Investment appraisal

9 things to know
Paper 2 and Paper 3

Overview

Payback period, average rate of return and net present value, how each is calculated, and what each one ignores.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Numbers

How is the payback period calculated when payback falls mid-year?

Numbers

What does the average rate of return measure, and how is it calculated?

Numbers

How is the total profit of an investment calculated, and when is a project accepted using ARR?

Evaluation

What are the limitations of the payback method?

Evaluation

Why is selecting an appropriate discount rate a limitation of NPV?

Numbers

How should payback results be interpreted in terms of acceptability?

Numbers

State the present-value formula.

Numbers

State the mid-year payback formula.

Numbers

State the ARR formula.

Questions from this subtopic

Each one with the model answer underneath.

1
What is simple payback?
Model answer
The time taken for a project to recover its initial investment from its net cash inflows.
2
What is the first step in calculating the payback period?
Model answer
Calculate cumulative cash inflows for each period.
3
After calculating cumulative cash inflows, how do you determine when payback occurs?
Model answer
Identify the period where cumulative inflows equal or exceed the initial investment.
4
If payback occurs partway through a year, how is the exact payback time determined?
Model answer
Interpolate to find the exact time within that year when cumulative inflows equal the initial investment.
5
State the formula for calculating payback period when payback occurs mid-year.
Model answer
Payback = Years before full recovery + (Remaining amount to recover ÷ Cash inflow in recovery year).
6
Calculate the payback period when years before full recovery = 9 years, remaining amount to recover = £39,000, cash inflow in recovery year = £65,000.
Model answer
Payback period = 9 + (39000 ÷ 65000) = 9.6 years.

See the rest and revise

Other ways to work this

The same content, four other ways.

What is inside Levo

Six ways to work the same material.

1Closed book

2Open book

3Closed book

The 3-step method, run for you

Answer cold, learn it, then prove it stuck. Levo tracks the jump between your first attempt and your last.

Meeting Customer Needs

The Market

Marketing Mix and Strategy

Managing People

Cram a whole paper in one sitting

Sort every topic into what you know and what you do not, then drill only the weak ones.

Net gain = − initial cost.

EMVNPVARR

Blank Blitz makes facts automatic

Rapid timed gap-fills on the terms and numbers you need to recall without thinking.

AGross profit equals revenue minus cost of sales.

BOperating profit equals gross profit minus operating expenses.

CNet profit equals operating profit minus interest and taxation.

Build It gets the exam shape right

Assemble a full-mark answer from its marking points, in the order an examiner wants them.

Tariff means a tax imposed on imported goods.

TrueFalse

Test It catches misconceptions

Spot the fault in a statement. The traps are the mistakes students actually make.

721941163128510

Brain Breaks between sessions

Short focus games to reset attention, so the next set lands better than the last.

Every question in Decision-Making Techniques, on a schedule.

Attempt a question from memory, write the correct version, then attempt it again. Levo records the jump between your first attempt and your last, and brings each question back on the day you are due to forget it.

Start revising, £5 a month See how the method works

Or £46 a year, about £3.83 a month. Cancel anytime.