Question

An 8-year project costs $475 and has cash flows of $100 for the first three years and $75 in each of the project's last five years. What is the payback period of the project

Answer 1

It will take 6 years and 183 days to cover for the investment.

Step-by-step explanation:

Giving the following information:

Cash flow:

Cf1 trough 3= 100

Cf4 trough 8= 75

Initial investment= 475

The payback period is the time required to recover the initial investment.

Year 1= 100 - 475= -375

Year 2= 100 - 375= -275

Year 3= 100 - 275= -175

Year 4= 75 - 175= -100

Year 5= 75 - 100= -25

Year 6= 75 - 25= 50

To be more accurate:

(25/50)*365= 183

It will take 6 years and 183 days to cover for the investment.