Question

Consider a project with an initial outlay of $1,000 and yearly cash flows as follows: -300, -100, 200, 300, 300, 100, 100, 200, 600, 400, and 100. Calculate the classical payback period assuming 10% cost of funds. Round your final answer to two decimal places. (please show step-by-step using formulas) (NEED ANSWER ASAP)

Answer 1

Payback period is the time within which cost and cash inflows become equal.
Year	Cash flows	Discount factor	Present value of cash flows	Cumulative Present value of cash flows	Cumulative Cash flows
a	b	c=1.10^-a	d=b*c	e	f
0	$       -1,000	1.0000	$       -1,000	$   -1,000	$   -1,000
1	$           -300	0.9091	$           -273	$   -1,273	$   -1,300
2	$           -100	0.8264	$             -83	$   -1,355	$   -1,400
3	$            200	0.7513	$            150	$   -1,205	$   -1,200
4	$            300	0.6830	$            205	$   -1,000	$      -900
5	$            300	0.6209	$            186	$      -814	$      -600
6	$            100	0.5645	$               56	$      -757	$      -500
7	$            100	0.5132	$               51	$      -706	$      -400
8	$            200	0.4665	$               93	$      -613	$      -200
9	$            600	0.4241	$            254	$      -358	$        400
10	$            400	0.3855	$            154	$      -204	$        800
11	$            100	0.3505	$               35	$      -169	$        900
Simple payback period is in the 9th year .However, if cost of fund that is 10% is considered then project is not paying pack.
Since cumulative present value of cash flows never become positive,project does not payback.
However, ignoring 10% cost of fund,
Payback period		=	8+(200/600)
		=	8.33	Years