Question

A proposed new venture will cost $85,000 and should produce annual cash flows of $30,000, $55,000, $40,000, and $40,000 for Years 1 to 4, respectively. The discount rate is 10 percent. What is the payback period

Answer 1

Answer:

2 years

Explanation:

Payback period is the amount of time it takes to recover the amount invested in a project from its cumulative cash flows

In the first year, -$85,000  + $30,000 = -$55,000 is recovered

In the second year, -$55,000 + $55,000 = 0

The total amount invested is recovered in the second year