Question

Lion Management Services is considering an investment of $75,000. Data related to the investment are as follows:

Answer 1

Answer:

It will take 3.3 years to cover the initial investment.

Explanation:

Giving the following information:

Initial investment=$75,000

Year Cash Inflows

1 $20,000

2 23,000

3 17,000

4 50,000

5 20,000

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

Year 1= 20,000 - 75,000= -55,000

Year 2= 23,000 - 55,000= -32,000

Year 3= 17,000 - 32,000= -15,000

Year 4= 50,000 - 15,000= 35,000

To be more accurate:

(15,000/50,000)= 0.3

It will take 3.3 years to cover the initial investment.