Question

An investment project provides cash inflows of $705 per year for eight years. a. What is the project payback period if the initial cost is $1,450? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) b. What is the project payback period if the initial cost is $3,600? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) c. What is the project payback period if the initial cost is $5,800? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer: A. 2.05  B. 5.10   C. 0

Explanation: Payback period can be defined as the period under which the profits or savings in an investment can recover the initial outlay invested in that investment. In simple words we can say that it is the time required by an investment to pay for itself.

Pay back period is computed as follows :-

$=\:payback\:period=\frac{\:Initial\:cash\:outlay}{cash\:inflows}$

therefore,

A. $=\:payback\:period=\frac{1450}{705}$=2.05years

B.$=\:payback\:period=\frac{3600}{705}$=5.10years

C.$=\:payback\:period=\frac{5800}{705}$=0