Question
In: Finance
Its cost of capital is 10 percent. What is the project’s payback period?
A project has the following cash flows:
Project
Year Cash Flow
0 -$3,000
1 1,000
2 1,000
3 1,357.51
4 1,000
Its cost of capital is 10 percent. What is the project’s payback period?
Solutions
Expert Solution
Calculating the Project's payback period:-
| Year | Cash Flows of Project ($) | Cummulative Cash Flows of Project ($) |
| 0 | (3,000.00) | (3,000.00) |
| 1 | 1,000.00 | (2,000.00) |
| 2 | 1,000.00 | (1,000.00) |
| 3 | 1,357.51 | 357.51 |
| 4 | 1,000.00 | 1,357.51 |
| 1,357.51 |
Payback Period = Years before the Payback period occurs + (Cummulative cash flow in the year before recovery/Cash flow in the year before recovery)
= 2 years + (1000/1357.51)
= 2.74 years
So, Project's Payack Period is 2.74 years
jeff jeffy answered 2 years agoRelated Solutions
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