An investment project costs $90,000. It is expected to have an annual net cash f

Question

An investment project costs $90,000. It is expected to have an annual net cash flow of $30,000 for five years. What is the project's payback period? A compacy is planning to buy a new piece of equipment. The equipment costs $65,000 and has a 7 year life and zero salvage value. The equipment will increase the company's net income before taxes by 17,000 in each of the 7 years. The company's tax rate is 52%. What is the ROR on the equipment? Analyse using before tax, after tax no depreciation and after tax straight light depreciation.

Explanation / Answer

1)Payback Period = Cost of Project / Annual Cash Inflows

therefore Payback Period = 90000/30000 = 3 years

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