Question

Consider the following threeminusyear project. The initial afterminustax outlay or afterminustax cost is​ $1,500,000. The future afterminustax cash inflows for years​ 1, 2, 3 and 4​ are: $800,000,​ $800,000, $300,000 and​ $100,000, respectively. What is the payback period without discounting cash​ flows?

Answer 1

1.875 years

Step-by-step explanation:

The payback period is the period required for a project to repay its initial investments.

Pay back period = initial investments/ initial investments

In this case: Initial investments: $ 1,500,000.00

cash flows :

Year initial invest Accumulated Depreciation

0 ( 1,500,000.00) (1,500,00.00

1 800,000 800,000

2 700,000 700,000/800,00

Payback period = 1 year + 700,000/800,000

= 1.875 years