Question

The management of Lanzilotta Corporation is considering a project that would require an investment of $191,000 and would last for 6 years. The annual net operating income from the project would be $108,000, which includes depreciation of $21,000. The scrap value of the project's assets at the end of the project would be $26,200. The cash inflows occur evenly throughout the year. The payback period of the project is closest to :___________

Answer 1

The payback period of the project is approximately 1.77 years.

Step-by-step explanation:

The payback period can be calculated by dividing the initial investment by the annual net operating income. In this case, the initial investment is $191,000 and the annual net operating income is $108,000.

Payback Period = Initial Investment / Annual Net Operating Income
= $191,000 / $108,000
= 1.7685 years

The payback period of the project is approximately 1.77 years.

Answer 2

1 year 5 month

Step-by-step explanation:

The Project Cash flow Summary is as follows :

Year 0 = -$191,000

Year 1 = $108,000 + $21,000 = $129,000

Year 2 = $108,000 + $21,000 = $129,000

Year 3 = $108,000 + $21,000 = $129,000

Year 4 = $108,000 + $21,000 = $129,000

Year 5 = $108,000 + $21,000 = $129,000

Year 6 = $108,000 + $21,000 + $26,200 = $155,200

Payback Period is the term used to determine how long the future cash flows would equal the amount invested.

$191,000 = $129,000 + 62,000/ $129,000 x 12

The future cash flows will equal $191,000 in 1 year 5 months.