Question

You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $4,000 and will be posted for one year. You expect that it will generate additional revenue of $760 a month. What is the payback period?

The payback period is _______months.  (Round to one decimal place.)

Answer 1

Payback period is the time required for the operating cash inflows to recover the initial investment in a project.

Here, the cash flows are uniform, so we will use the following formula for payback period:

Payback period = Net initial investment / Net cash flows

Given: Initial investment = $4000, Net cash flows = $760

So,

Payback period = $4000 / $760 = 5.3 months.