Question

A project has an initial cost of $44,000. Expected cash flows as a result of this project are projected as indicated below. Calculate the payback period for this project. Assume a discount rate of 9%. HOMEINSERTDATA

Answer 1

Answer:

3.5 years

Explanation:

The computation of the payback period is shown below:

In year 0 = -$44,000

In year 1 = $10,000

In year 2 = $10,000

In year 3 = $15,000

In year 4 = $18,000

In year 5 = $15,000

If we add the first 3 year cash inflows than it would cost $35,000

Now we deduct the $35,000 from the $44,000 so the amount left would be $9,000 as if we added the fourth year cash inflow so the total amount exceed to the initial investment. So, we deduct it

And, the next year cash inflow is $18,000

So, the payback period equal to

= 3 years + $9,000 ÷ $18,000

= 3 years + 0.5

= 3.5 years

Since the question has ask about only payback period so we ignored the discount rate i.e given in the question