Question

A project has an initial cost of $44,000. Expected cash flows as a result of this project are projected as follows. Calculate the payback period for this project. Assume a discount rate of 9%.

Answer 1

Answer:

3.5 year

Explanation:

The computation of the payback period is given below:

Year          Cash Inflow       Cumulative Cash Inflow

1                $10,000                 $10,000

2               $10,000                   $20,000

3                $15,000                 $35,000

4                $18,000                 $53,000

Now the payback period is

=  3 year + ($53,000 - $44,000) ÷ $18,000

= 3 year + 0.5

= 3.5 year