Question

Project M has a cost of $89,125, expected net cash inflows are $20,000 per year for 10 years, and a cost of capital of 12%. Answer the following questions: What is the project’s payback period (to the closest year)

Answer 1

The payback period for Project M, given a cost of $89,125 and annual cash inflows of $20,000, is approximately 4 years to the closest year.

Step-by-step explanation:

The student has asked about the payback period for Project M, which has a cost of $89,125, expected net cash inflows of $20,000 per year for 10 years, and a cost of capital of 12%. The payback period is the time it takes for the net cash inflows to cover the initial investment cost.

To calculate the payback period, we divide the initial investment by the annual cash inflow: $89,125 / $20,000 = 4.45625 years.

As the calculations result in a partial year and the question asks for the closest year, the project's payback period is to the closest year, which is 4 years.