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) |
jeff jeffy answered 2 years agoRelated Solutions
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