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28 February, 18:08

An investment project provides cash inflows of $675 per year for eight years.

a. What is the project payback period if the initial cost is $1,850? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e. g., 32.16.).

b. What is the project payback period if the initial cost is $3,600? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e. g., 32.16.).

c. What is the project payback period if the initial cost is $5,500? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e. g., 32.16.)

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Answers (1)
  1. 28 February, 18:33
    0
    a. 2.74 years

    b. 5.3 years

    c. NIL

    Explanation:

    The formula to compute the payback period is shown below:

    = Initial investment : Net cash flow

    For part a, the project payback period would be

    = $1,850 : $675

    = 2.74 years

    For part b, the project payback period would be

    = $3,600 : $675

    = 5.33 years

    For part c, the project payback period would be

    = $5,500 : $675

    = NIL as the payback period 8.14 is exceeded then the expected life of the investment project i. e 8 years
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