Question

norton corporation is considering a 6 year project having an initial investment of $150,000. the project will provide cash inflows of $25,000 for the first 3 years and $60,000 during the last 3 years. given this information, calculate the project's payback.

Answer 1

The payback period of the project is approximately 4.25 years.

Step-by-step explanation:

The payback period is the time it takes for an investment to recover its initial cost. In this case, the project has an initial investment of $150,000. The cash inflows for the first 3 years are $25,000 per year, and for the last 3 years it is $60,000 per year.

To calculate the payback period, we need to determine how long it will take for the total cash inflows to equal or surpass the initial investment.

In the first 3 years, the total cash inflows are $25,000 * 3 = $75,000. So, we subtract this amount from the initial investment: $150,000 - $75,000 = $75,000.

Then, we calculate how many additional years it will take to recover the remaining investment of $75,000 using the annual cash inflows of $60,000 for the remaining 3 years: $75,000 / $60,000 ≈ 1.25 years.

Therefore, the project's payback period is approximately 3 years 1.25 years, or 4.25 years.