Question

An investment project provides cash inflows of $1,225 per year for eight years. a. What is the project payback period if the initial cost is $4,000

Answer 1

Project Payback Period = 3.27 years

Step-by-step explanation:

Cash inflow = $1,225

n= 8

Initial cost= $4,000

Project payback = ?

Year Cash Flow Cumulative Cash Flow

0 -4000 -4000

1 1225 -2775

2 1225 -1550

3 1225 -325

4 1225 900

5 1225 2125

6 1225 3350

7 1225 4575

8 1225 5800

Total = $5800

Payback Period = 3 years + 325/1225

=3.27 years

Payback period is the length of time required for an investment to recover its initial outlay. In this case, it took 3.27 years to recover the initial cost of $1,225.