Question

A project has an initial cost of $7,900 and cash inflows of $2,100, $3,140, $3,800, and $4,500 a year over the next four years, respectively. What is the payback period

Answer 1

Answer:

It will take 2 years and 256 days to cover the initial investment.

Explanation:

Giving the following information:

Initial investment= $7,900

Cash flows:

Cf1= 2,100

Cf2= 3,140

Cf3= 3,800

Cf4= 4,500

The payback period is the time required to cover the initial investment.

Year 1= 2,100 - 7,900= -5,800

Year 2= 3,140 - 5,800= 2,660

Year 3= 3,800 - 2,660= 1,140

To be more accurate:

(2,660 / 3,800)= 0.7*365= 256

It will take 2 years and 256 days to cover the initial investment.