Question

In: Finance

Payback A project has an initial cost of $50,875, expected net cash inflows of $8,000 per...

Payback A project has an initial cost of $50,875, expected net cash inflows of $8,000 per year for 9 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places. __years

Solutions

Expert Solution

Answer =   6.36 years

Note:

Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

= 6+(2875/8000)

= 6.36 years

Year Investment Cash Inflow Net Cash Flow
0 -50,875.00 -    -50,875.00 (Investment + Cash Inflow)
1 -    8,000.00 -42,875.00 (Net Cash Flow + Cash Inflow)
2 -    8,000.00 -34,875.00 (Net Cash Flow + Cash Inflow)
3 -    8,000.00 -26,875.00 (Net Cash Flow + Cash Inflow)
4 -    8,000.00 -18,875.00 (Net Cash Flow + Cash Inflow)
5 -    8,000.00 -10,875.00 (Net Cash Flow + Cash Inflow)
6 -    8,000.00 -2,875.00 (Net Cash Flow + Cash Inflow)
7 -    8,000.00 5,125.00 (Net Cash Flow + Cash Inflow)
8 -    8,000.00 13,125.00 (Net Cash Flow + Cash Inflow)
9 -    8,000.00 21,125.00 (Net Cash Flow + Cash Inflow)

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