Question

In: Finance

Find the payback for the investment if you are given an investment of $30,000 and an...

Find the payback for the investment if you are given an investment of $30,000 and an annual income of 20,000 in the first year that is increasing 3000/year after that for 6 years. Show work.

Solutions

Expert Solution

Solution :- Initial investment = $ 30,000

Year Annual income Cumulative annual income
1 20000 20000
2 23000 (20000 + 3000) 43000 (20000 + 23000)
3 26000 (23000 + 3000) 69000 (20000 + 23000 + 26000)
4 29000 (26000 + 3000) 98000 (20000 + 23000 + 26000 + 29000)
5 32000 (29000 + 3000) 130000 (20000 + 23000 + 26000 + 29000 + 32000)
6 35000 (32000 + 3000) 165000 (20000 + 23000 + 26000 + 29000 + 32000 + 35000)
7 38000 (35000 + 3000) 203000 (20000 + 23000 + 26000 + 29000 + 32000 + 35000 + 38000)

Payback period is the length of time required to recover the initial cost of investment project. In the given question, Pay back period of investment lies between Year 1 and Year 2, accordingly, by interpolation, Payback period is calculated as follows:-

= 1 + (30000 - 20000) / 23000

= 1 + 10000 / 23000

= 1 + 0.43 (approx).

= 1.43 Years.

Conclusion :- Payback period of investment = 1.43 Years.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Given the following cash flows, what is the project's payback for an initial investment of $100,000?...
Given the following cash flows, what is the project's payback for an initial investment of $100,000? Year 1 - $25,000 Year 2 - $40,000 Year 3 - $45,000 Year 4 - $50,000 a. 2.8 years b. 2 years c. Answer cannot be determined. d. 4 years
Find payback period
Find payback period Year Project Cash Flow ($) 0 -15,000,000 1 5,500,000 2 4,250,000 3 3,333,333 4 2,050,000 5 1,250,000 6 1,250,000
What is the annual rate of return on an investment if you lend $30,000 and are...
What is the annual rate of return on an investment if you lend $30,000 and are repaid $40,000 five years later? (Round final answer to 2 decimal places. Omit the "%" sign in your response.) Suppose you currently have $100 and plan to purchase a 2-year certificate of deposit (CD) that pays 5% interest, compounded semi-annually. How much will you have when the CD matures? (Round final answer to 2 decimal places. Omit the "$" sign in your response.) A...
What is the payback period for the following investment given that (a) i=0% and (b) i=10%?...
What is the payback period for the following investment given that (a) i=0% and (b) i=10%? Site Initial Cost Annual Cost Annual Income Maximum Life Salvage Value X 1,000,000 100,000 300,000 10 yrs 500,000 By hand please.
Given the following cash flows for a proposed capital investment project, calculate the payback period. Year...
Given the following cash flows for a proposed capital investment project, calculate the payback period. Year Cash Flow 0 -$40,000 1 15,000 2 15,000 3 15,000 4 15,000 5 10,000 6 10,000 Question 4 options: 5.50 years 3.33 years 4.33 years 2.67 years
An investment is made for $30,000. If you want to recover the cost in 2 years,...
An investment is made for $30,000. If you want to recover the cost in 2 years, what should the realized income be in every 6 months at an interest rate of 12% per year compounded quarterly? Answer should be: 8675.59
You have been offered an investment that will pay you a lump sum of $30,000 25...
You have been offered an investment that will pay you a lump sum of $30,000 25 years from today, along with a payment of $1,000 per year for 25 years starting one year from today. How much are you willing to invest today to have this investment in your portfolio assuming you wish to earn a rate of 6 percent compounded annually?
You have been offered an investment that will pay you a lump sum of $30,000 25...
You have been offered an investment that will pay you a lump sum of $30,000 25 years from today, along with a payment of $1,000 per year for 25 years starting one year from today. How much are you willing to invest today to have this investment in your portfolio assuming you wish to earn a rate of 6 percent compounded annually? Round the answer to the nearest whole number.
According to the payback rule, an investment is accepted if its calculated payback period is less...
According to the payback rule, an investment is accepted if its calculated payback period is less than or equal to a prespecified number of years. Consider the investment below if analysed using the NPV rule. The initial cost is R6-million and the cost of capital is 10% per annum. It has been decided that the project should be accepted if the payback period is three years or less. Using the payback rule, should this project be undertaken? Year Cash Flow...
Mitchell Investments has offered you an investment opportunity. If you invest $30,000 today you will receive...
Mitchell Investments has offered you an investment opportunity. If you invest $30,000 today you will receive the following cash-flows: *$6,000 each year from years 1 through 5 *$3,000 each year from years 6 through 10 *$2,000 each year from years 11 through 20 If you required a 9% return on your investments, would this be a good investment opportunity? Show your work and justify your answer.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT