Consider the following four-year project. The initial after-tax outlay is $550,0

Question

Consider the following four-year project. The initial after-tax outlay is $550,000. The future after-tax cash inflows for years 1, 2, 3 and 4 are: $175,000, $250,000, $280,000 and $200,000, respectively. What is the payback period without discounting cash flows? Answer                                                   
           3.0 years                             
           2.44 years                             
           4.0 years                             
           3.5 years Consider the following four-year project. The initial after-tax outlay is $550,000. The future after-tax cash inflows for years 1, 2, 3 and 4 are: $175,000, $250,000, $280,000 and $200,000, respectively. What is the payback period without discounting cash flows? Consider the following four-year project. The initial after-tax outlay is $550,000. The future after-tax cash inflows for years 1, 2, 3 and 4 are: $175,000, $250,000, $280,000 and $200,000, respectively. What is the payback period without discounting cash flows? 3.0 years 2.44 years 4.0 years 3.5 years                             
           3.0 years                             
           2.44 years                             
           4.0 years                             
           3.5 years

Explanation / Answer

after year1

amount to payback = 550000 - 175000 = 375000

after year 2

amount to payback = 375000 - 250000 = 125000

in year 3

it takes 125000/280000 = 0.44 year

hence pay back period = 2.44 years

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