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SSSSS [86.1K]
3 years ago
5

The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in Yea

rs 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10 percent. What is the payback period for this investment?
Business
1 answer:
Sergio [31]3 years ago
3 0

Answer:

payback period = 4.86 years

Explanation:

given data

cash flows year 1 = $30,000 per year

cash flows year 5 = $35,000 per year

cash flows year 10 = $40,000 per year

investment cost = $150,000

to find out

payback period for this investment

solution

we get here accumulated inflows will be

accumulated inflows year 4 =  $30,000 × 4

accumulated inflows year 4 = $120,000

and

accumulated inflows year 5 = $120,000 + $35,000 = $155,000

and Initial investment = $150,000

so payback period will be

payback period = 4 years + (150,000 - 120,000)  ÷ 35,000 × 365 days

payback period = 4 years and 313 days

payback period = 4.86 years

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