You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, respectively?

A) 0.82 year
B) 0.90 year
C) 1.11 years
D) 1.82 years
E) 1.90 years

Question

Andrew Morrissette · Accepted Answer

Final Answer : D, Explanation :  The payback period is the time it takes for the cumulative cash inflows to equal the initial investment. After the first year, the cumulative cash inflow is $14,650. After the second year, it is $30,840 ($14,650 + $16,190), which exceeds the initial cost of $27,900. The payback period is between the first and second year. The remaining amount to recover after the first year is $27,900 - $14,650 = $13,250. It takes $13,250/$16,190 = 0.82 of the second year to recover this amount. Therefore, the payback period is 1 + 0.82 = 1.82 years.

You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, respectively?

A) 0.82 year
B) 0.90 year
C) 1.11 years
D) 1.82 years
E) 1.90 years

Definitions

Learning Objectives

Learning Objectives

Related questions

You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, respectively?A) 0.82 yearB) 0.90 yearC) 1.11 yearsD) 1.82 yearsE) 1.90 years

Definitions

Learning Objectives

Learning Objectives

Related questions

You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, respectively?

A) 0.82 year
B) 0.90 year
C) 1.11 years
D) 1.82 years
E) 1.90 years