Question

An investment project provides cash inflows of $1,225 per year for eight years. a. What is the project payback period if the initial cost is $4,000

Answer 1

Answer:

Project Payback Period = 3.27 years

Explanation:

Cash inflow = $1,225

n= 8

Initial cost= $4,000

Project payback = ?

Year   Cash Flow Cumulative Cash Flow

0          -4000                -4000

1            1225                 -2775

2           1225                  -1550

3            1225                  -325

4            1225                   900

5             1225                   2125

6             1225                   3350

7              1225                   4575

8              1225                   5800

Total = $5800

Payback Period = 3 years + 325/1225  

=3.27 years  

Payback period is the length of time required for an investment to recover its initial outlay. In this case, it took 3.27 years to recover the initial cost of $1,225.