Question

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.

Answer 1

a) i = 0%

Based on the question calculate the cashflows each year.

Payback period = Initial Investment / Cash Inflow per Period

                                = 1000000 / 200000

                                = 5

(a) i = 10%

Based on the question calculate the cashflows each year.

Payback period if cash flow is unequal

= No. of years before first positive cumulative cash flow + (Absolute value of last negative cumulative cash flow / Cash flow in the year of first positive cumulative cash flow)
= 4 + (|-71,000| / 292,820 )
= 4 + 0.2452
= 4.2452