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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?

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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)

jeff jeffy answered 2 years ago
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