Question

Compute the payback period for a project that requires an initial outlay of $297,771 that is expected to generate $40,000 per year for 9 years.

Answer 1

Answer:

7.44

Explanation:

The computation of the payback period is given below:

Time        Amount       Cumulative

0              (297,771)        (297,771)

1                40,000         (257,771)

2              40,000           (217,771)

3              40,000            (177,771)

4               40,000            (137,771)

5                40,000           (97,771)

6                40,000          (57,771)

7                40,000           (17,771)

8                40,000           22,229

9               40,000              62,229

Now the payback period is  

=7 + (17,771 ÷ 40,000)

= 7.44