An oil well will have a first cost of $470,000 and annual costs of $131,250. Income...

An oil well will have a first cost of $470,000 and annual costs of $131,250. Income is expected to be $190,000 per year. What is the payback period at 6% per year interest?

a. Between 8&9 years

b. Between 9&10 years

c. Between 10&11 years

d. Between 11&12 years

Expert Solution

Ans a. Between 8&9 years

Year	Annual Income (A)	Annual Cost (B)	Cash Flow/ Profit (A - B)	Cumulative Cash Flow
0	0	470000	-470000	-470000
1	190000	131250	58750	-411250
2	190000	131250	58750	-352500
3	190000	131250	58750	-293750
4	190000	131250	58750	-235000
5	190000	131250	58750	-176250
6	190000	131250	58750	-117500
7	190000	131250	58750	-58750
8	190000	131250	58750	0
9	190000	131250	58750	58750
10	190000	131250	58750	117500
TOTAL			117500

Payback Period =			8 years

jeff jeffy answered 2 years ago

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