In: Finance
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
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 |