Question

Binder Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project

Answer 1

Answer:

2.12 years

Explanation:

The calculation of the payback period is given below:

Year           CF             Cumulative CF

0         $(1,450,000)       $(1,450,000)

1            640,000            (810,000)

2           715,250            (94,750)

3           823,330           728,580

4           907,125           1,635,705

Now payback period is  

= 2 + ($94,750 ÷$823,330)

= 2.12 years