Question

Park co. is considering an investment that requires immediate payment of $30,500 and provides expected cash inflows of $10,000 annually for four years. what is the investment's payback period?

Answer 1

The Investment's Payback period is 3.05 years.

Given that the cost of investment = $30,500

The expected cash inflows = $10,000

It also says that the cash inflows is taken annually for 4 years.

Now, payback period refers to the time by which the invested amount is returned.

So, Payback period = Cost of Investment / annual net cash inflow

                          = 30500/10000

                          = 3.05 years

Hence the amount invested will be returned in 3.05 years. But since there is cash inflows for 4 years, this investment can be considered a profit.

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