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Determine the payback period in years for a project that costs $45,000 and would yield after-tax...

Determine the payback period in years for a project that costs $45,000 and would yield after-tax cash flows of $9,000 the first year, $11,000 the second year, $14,000 the third year, $16,000 the fourth year, $20,000 the fifth year, and $26,000 the sixth year.

Solutions

Expert Solution

Year Investment Net annual cash flow Cumulative net cash flow Balance to be recovered
0            (45,000)                             -                 45,000.00
1                 9,000                      9,000               36,000.00
2              11,000                    20,000               25,000.00
3              14,000                    34,000               11,000.00
4              16,000                    50,000                              -  
5              20,000                    70,000                              -  
6         26,000.00                    96,000                              -  
Capital is recovered fully in year 4
Pay back period is= 3 + 11000/16000 3.69

Answer is:

3.69 years

jeff jeffy answered 1 year ago
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