Question

The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is the payback period for this investment?

Answer 1

NPV: $51,138.24;

Payback Period: 4.86 years

Step-by-step explanation:

Using the even cash flow distribution assumption, the project will completely recover the initial investment after

P30/P35 = 0.86 of Year 5:

Payback = 4 + = 4.86 years.