Question

What is the payback period for a project with an initial investment of $180,000 that provides an annual cash inflow of $40,000 for the first three years and $25,000 per year for years four and five, and $50,000 per year for years six through eight?

Answer 1

Answer:

It will take 5.2 years to cover the initial investment.

Explanation:

The payback period is the time required to cover the initial investment.

year 1= 40,000 - 180,000= -140,000

Year 2= 40,000 - 140,000= -100,000

Year 3= 40,000 - 100,000= -60,000

Year 4= 25,000 - 60,000= -35,000

Year 5= 25,000 - 35,000= -10,000

Year 6= 50,000 - 10,000= 40,000

To be more accurate:

(10,000/50,000)= 0.2

It will take 5.2 years to cover for the initial investment.