An investment project provides cash inflows of $630 per year for eight years. Wh

Question

An investment project provides cash inflows of $630 per year for eight years. What is the project payback period if the initial cost is $1,775? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Payback period years What is the project payback period if the initial cost is $3,450? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Payback period years What is the project payback period if the initial cost is $5,200? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Payback period years

Explanation / Answer

Payback period: Case 1

Payback Period = A +B/C where A = last time period with negative cash flow, B= absolute value of cumulative cash flow at the end of period A and C= Total cash flow during period following A.

Payback period = 2 + 515/630 = 2.82 years

Case 2

Payback period = 5 + 300/630 =5.48 years

Case 3:

Project never paybs back

Year Cashflow Cumulative Cash flow 0 -1775 -1775 1 630 -1145 2 630 -515 3 630 115 4 630 745 5 630 1375 6 630 2005 7 630 2635 8 630 3265

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