Question

An investment project provides cash inflows of $590 per year for 9 years.

a. What is the project payback period if the initial cost is $2,360 ?
b. What is the project payback period if the initial cost is $3,658?
c. What is the project payback period if the initial cost is $5,900 ?

Answer 1

The payback period for an investment project with annual cash inflows of $590 is 4 years for an initial cost of $2,360, 6.2 years for an initial cost of $3,658, and 10 years for an initial cost of $5,900.

Step-by-step explanation:

The concept in question here is the payback period, which is a financial metric used in capital budgeting to evaluate the time taken for an investment to repay its initial cost from the cash inflows it generates. To calculate the payback period, the total investment cost is divided by the annual cash inflow.

Calculations:

For an initial cost of $2,360 and an annual cash inflow of $590, the payback period is $2,360 / $590 = 4 years.

For an initial cost of $3,658 and an annual cash inflow of $590, the payback period is $3,658 / $590 = 6.2 years.

1. For an initial cost of $5,900 and an annual cash inflow of $590, the payback period is $5,900 / $590 = 10 years.