Question

A project with an initial cost of $28,300 is expected to generate cash flows of $6,900, $9,000, $9,250, $8,150, and $7,700 over each of the next five years, respectively. What is the project's payback period

Answer 1

3.39 years

Step-by-step explanation:

The computation of the project payback period is shown below:

Initial cost = $28,300

Generated cash flows Cumulative cash flows

1 $6,900 $6,900

2 $9,000 $6,900 + $9,000 = $15,900

3 $9,250 $15,900 + $9,250 = $25,150

4 $8,150

5 $7,700

Here the payback period is

= 3 years + ($28,300 - $25,150) ÷ $8,150

= 3 years + 0.386

= 3.39 years

hence, the payback period is 3.39 years