Question

Lamar Company is considering a project that would have an eight-year life and require a $2,400,000 investment in equipment. At the end of eight years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:The company's discount rate is 12%.Compute the project's payback period.

Answer 1

$Paybackperiod=Intial investment / Net annual cash inflow$

project's payback period is 4.5 years.

What is net operating income?

• Before deducting any expenditures for financing or taxes, net operational income assesses the profitability of an income-producing asset.
• Subtract all property-related running costs from all income earned at the property to arrive at NOI.
• A property owner can manipulate the operational expenditures included in the NOI statistic by delaying or accelerating particular revenue or expense elements.
• Capital expenses are excluded from the NOI statistic.
• A property owner can use NOI to determine whether the cost of owning and maintaining a property outweighs the benefits of renting it out.

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