CE Board Exam Randomizer

Recovery, Payback, and Payout Periods

These measures estimate how long it takes to recover invested capital from profits or cash inflows.

$$Recovery\ Period=\frac{Total\ Investment}{Annual\ Profit}$$

$$Payback\ Period=\frac{Initial\ Investment}{Net\ Annual\ Profit}$$

Problem 70: Recovery Period

JG Summit invests P9.5 M and expects annual income P2.8 M. Annual depreciation P1 M, operating expenses P600,000, taxes and insurance P200,000, and miscellaneous P50,000. Find recovery period.

$$Annual\ profit=2,800,000-1,000,000-600,000-200,000-50,000=950,000$$

$$Recovery=\frac{9,500,000}{950,000}=10\text{ years}$$

Final answer: 10 years.

Problem 74: Payback From Uneven Cash Flow

Initial investment is $50,000. Cash inflows are $10,000, $12,000, $15,000, $18,000, and $20,000. Find payback period.

After 3 years, cumulative inflow is $37,000. After 4 years, it is $55,000. Remaining after year 3 is $13,000.

$$x=\frac{13000}{18000}=0.72$$

Final answer: $3.72$ years.

Problem 75: Payout Period

A plant requires fixed capital P8 M, working capital P1.5 M, annual profit P2 M, and depreciation 8% of fixed capital. Compute payout period.

$$Annual\ depreciation=0.08(8,000,000)=640,000$$

$$Payout=\frac{8,000,000}{2,000,000+640,000}=3.03\text{ years}$$

Final answer: 3.03 years.

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