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8 October, 13:56

Redwood Corporation is considering two alternative investment proposals with the following dа ta: Proposal X Proposal Y Investment $830,000 $510,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $135,000 $83,000 Residual value $50,000 $minus Depreciation method Straightminusline Straightminusline Required rate of return 16% 9% How long is the payback period for Proposal X?

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  1. 8 October, 14:21
    0
    = 6.15 years

    Explanation:

    The payback period is the estimated length of time in years it takes

    the net cash inflow from a project to equate the net cash the initial cost

    Where a project is expected to generate a series of equal annual net cash inflow, the payback period can be calculated as:

    The initial invest / Net cash inflow per year

    So the payback period for project X

    = $830,000/135,000

    = 6.14

    = 6.15 years
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