Final answer:
The payback period for the ₹100,000 investment with annual cash inflows of ₹30,000 is approximately 3.33 years, which is the time needed for the investment to recoup its initial cost.
Step-by-step explanation:
The payback period is a financial metric used to determine the length of time required to recover the cost of an investment. In the scenario given, management is looking at a ₹100,000 investment with annual cash inflows of ₹30,000 and no residual value after a 5-year period.
To calculate the payback period, divide the initial investment by the annual cash inflow. Therefore, the payback period for this investment would be:
Payback Period = Initial Investment / Annual Cash Inflow
Payback Period = ₹100,000 / ₹30,000
Payback Period ≈ 3.33 years
This result suggests that it will take approximately 3.33 years for the project to generate enough cash inflows to cover the initial investment of ₹100,000.