Question

Payback period The Ball Shoe Company is considering an investment project that requires an initial investment of $ 544,000 and returns​ after-tax cash inflows of ​$77,624 per year for 10 years. The firm has a maximum acceptable payback period of 8 years. a. Determine the payback period for this project. b. Should the company accept the​ project?

Answer 1

Answer:

Payback period is  7.01   years

The project should be accepted

Explanation:

The payback period is the time taken for the initial cash outlay of $544,000 to recoup itself, in other words,the length of time taken for the company to receive cash inflows equivalent to the amount invested initially.

payback period=initial capital outlay/annual after-tax cash inflows

payback period=$544,000/$77,624= 7.01   years.

It shows that the project's payback is lesser than the company's target,hence,the project should be accepted