Question

Project L costs $35,000, its expected cash inflows are $11,000 per year for 7 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places.

___years

Answer 1

We can calculate the Payback period for the project in the excel sheet as follows

There is no need of WACC in calculating the payback period. We will consider the cumulative cashflows for the years including the first year where there is negative cashflow which is the total cost of the project.

Formula to calculate Payback Period is:

= Last year of Negative Cash Flows + (Last Amount of Negative Cumulative Flows / Next period cash Inflows)

Formulas used in the Excel sheet are

So, the Payback period of the Project L comes out to be 3.18 years.

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