Question

A certain project has a project cost of $387,000 and the annual inflows resulting from the product created is $64,000. What is the Payback Period?

Answer 1

Payback period is 6.5625 years

Step-by-step explanation:

All amounts are in $

Item outflow inflow balance

Year 0 387,000 0 (387,000)

Year 1 0 64,000 (323,000)

Year 2 0 64,000 (259,000)

Year 3 0 64,000 (195,000)

Year 4 0 64,000 (131,000)

Year 5 0 64,000 (67,000)

Year 6 0 64,000 (3,000)

The remaining $3000 will flow in

= (3000/64000) × 12

= 0.5625

Payback period is 6.5625 years