Answer:
Explanation:
To calculate the payback period of the investment, we need to find out how long it will take for the company to recover the initial investment of 80000000 through the cash flows generated by the investment.
Step 1: Calculate the cumulative cash flow for each year.
Year 1: 25000000
Year 2: 25000000 + 25000000 = 50000000
Year 3: 50000000 + 20000000 = 70000000
Year 4: 70000000 + 20000000 = 90000000
Step 2: Determine the year in which the cumulative cash flow exceeds the initial investment.
Based on the calculations above, the cumulative cash flow exceeds the initial investment of 80000000 in Year 4.
Step 3: Calculate the payback period.
The payback period is the time it takes for the cumulative cash flow to equal the initial investment. In this case, the payback period is the end of Year 3 plus the portion of Year 4 needed to recover the remaining investment, which is calculated as follows:
80000000 - 70000000 = 10000000
10000000 ÷ 20000000 = 0.5
Therefore, the payback period for this investment is 3.5 years.
To confirm this result, we can also calculate the cumulative cash flow at the end of Year 3 and check that it is less than the initial investment, while the cumulative cash flow at the end of Year 4 exceeds the initial investment:
Year 1: 25000000
Year 2: 25000000 + 25000000 = 50000000
Year 3: 50000000 + 20000000 = 70000000 (cumulative cash flow at end of Year 3)
Year 4: 70000000 + 20000000 = 90000000 (cumulative cash flow at end of Year 4)
Since the cumulative cash flow at the end of Year 3 is less than the initial investment and the cumulative cash flow at the end of Year 4 exceeds the initial investment, we can confirm that the payback period is between Year 3 and Year 4, or 3.5 years.