Answer:
4.86 years
Explanation:
Data provided in the question:
Cash flow each year from year 1 to year 4 = $30,000
Cash flow in year 5 through 9 = $35,000
Cash flow in year 10 = $40,000
Initial investment = $150,000
Firm's WACC = 10%
Now,
Accumulated cash flow for 4 years = $30,000 × 4 = $120,000
Accumulated Cash flow for 5 years = $120,000 + $35,000
= $155,000 > amount invested ($150,000)
Thus,
Remaining payback amount required in year 5 = $150,000 - $120,000
= $30,000
Payback period for $30,000 in year 5 = [$30,000 ÷ Annual cash flow]
= $30,000 ÷ $35,000
= 0.86 years
Hence,
Total payback period for this investment is
= 4 years + 0.86 years
= 4.86 years
