Question

Project l costs $50,000, its expected cash inflows are $14,000 per year for 7 years, and its wacc is 9%. what is the project's payback? round your answer to two decimal places

Answer 1

The Project’s Payback Period will be 3.57 Years.

Payback Period:

• The number of years required to recover the initial financial investment is referred to as payback time. It is, in other words, the length of time that a machine, facility, or other investment has generated enough net income to pay its investment costs.
• The Payback Period illustrates how long it takes a business to recoup its investment. If a project's ability to pay back its investment in the shortest amount of time is crucial to a company, this form of research enables them to assess other investment alternatives.
• Simply divide the initial cash outlay of a project by the amount of net cash inflow that the project generates annually to learn how to calculate payback period in practice. As you calculate the payback period, you can assume that the annual net cash inflow is constant.
• Project’s Payback Period = Initial Investment Cost/Annual Cash Inflow= 50,000/ 14,000 per year = 3.57 Years
• Hence, the Project’s Payback Period will be 3.57 Years.

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