Answer:
It will take 5 years and 99 days to recover for the initial investment at a discount rate of 9%.
Explanation:
Giving the following information:
Project X t Cash Flows
0 -44,000
1 10,000
2 10,000
3 15,000
4 18,000
5 15,000
<u>The payback period is the time required to cover for the initial investment. We need to discount each cash flow using the following formula:</u>
PV= Cf/(1+i)^n
Year 1= 10,000/1.09= 9,174.31 - 44,000= -34,825.69
Year 2= 10,000/1.09^2= 8,416.80 - 34,825.69= -26,408.89
Year 3= 15,000/1.09^3= 11,582.75 - 26,408.89= 14,826.14
Year 4= 18,000/1.09^4= 12,751.65 - 14,826.14= - 2,074.49
Year 5= 15,000/1.09^5= 9,748.97 - 2,074.49= 7,674.48
<u>To be more accurate:</u>
(2,074.49/7,674.48)*365= 99
It will take 5 years and 99 days to recover for the initial investment at a discount rate of 9%.
