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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 ago
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