Question

Consider the following threeminusyear project. The initial afterminustax outlay or afterminustax cost is​ $1,500,000. The future afterminustax cash inflows for years​ 1, 2, 3 and 4​ are: $800,000,​ $800,000, $300,000 and​ $100,000, respectively. What is the payback period without discounting cash​ flows?

Answer 1

Answer:

1.875 years

Explanation:

The payback period is the period required for a project to repay its initial investments.

Pay back period = initial investments/ initial investments

In this case: Initial investments: $ 1,500,000.00

cash flows :

Year       initial invest Accumulated Depreciation

0     ( 1,500,000.00)  (1,500,00.00

1     800,000    800,000

2     700,000   700,000/800,00

Payback period = 1 year + 700,000/800,000

   = 1.875 years