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Project L requires an initial outlay at t = 0 of $45,000, its expected cash inflows...

Project L requires an initial outlay at t = 0 of $45,000, its expected cash inflows are $11,000 per year for 6 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places. years

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Expert Solution

Year Cash flows of Project L Cumulative Cashflows
      -                                  -45,000.00                        -45,000.00
       1                                 11,000.00                        -34,000.00
       2                                 11,000.00                        -23,000.00
       3                                 11,000.00                        -12,000.00
       4                                 11,000.00                          -1,000.00
       5                                 11,000.00                         10,000.00
       6                                 11,000.00                         21,000.00
Payback period= A+(B/C)
A=Last period number with negative cumulative cashflows
B=absolute value of cumulative net cash flow at the end of period A
C=total cashflow during the period following period A
Payback period= 4+(1000/11000)
                                  4.09 years

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