Question

In: Finance

Problem 11-4 Payback period Project L costs $75,000, its expected cash inflows are $14,000 per year...

Problem 11-4 Payback period Project L costs $75,000, its expected cash inflows are $14,000 per year for 7 years, and its WACC is 14%. What is the project's payback? Round your answer to two decimal places. years

Solutions

Expert Solution

Payback = 5.36 years

Payback = Year in which Cumulative CF is last negative -(Last negative cumulative CF/ CF of next year
= 5 - (-5000/14000)

=5.36 years

WORKINGS

Year Cash flows Cumulative CF
0 -75000 -75000
1 14000 -61000
2 14000 -47000
3 14000 -33000
4 14000 -19000
5 14000 -5000
6 14000 9000
7 14000 23000


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