Question
In: Finance
Canadian pacific is considering a project that has an initial cash outflow of $1,245 and expected...
Canadian pacific is considering a project that has an initial
cash outflow of $1,245 and expected cash inflows of $500 in years
1,2,3. what is the projects payback?
Solutions
Expert Solution
| Answer: | ||||||
| Calculation of payback period | ||||||
| Formula | ||||||
| Payback period = Year before full recovery of cost + Balance cost to be recovered/cash inflow during the year | ||||||
| Calculation of cummulative cash inflow | ||||||
| Year | Cash inflows | Cummulative inflows | ||||
| 1 | 500.00 | 500.00 | ||||
| 2 | 500.00 | 1,000.00 | ||||
| 3 | 500.00 | 1,500.00 | ||||
| Initial cost = | $1,245 | |||||
| Payback period = 2 years + ($1245 - $1000)/$500 | ||||||
| = 2 years + 245/500 | ||||||
| = 2 years + 0.49 | ||||||
| = 2.49 years | (Answer) |
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