(Ignore income taxes in this problem.) Neighbors Corporation is considering a pr

Question

(Ignore income taxes in this problem.) Neighbors Corporation is considering a project that would require an investment of $359,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows:

The scrap value of the project's assets at the end of the project would be $31,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:

3.4 years

6.2 years

4.3 years

3.2 years

(Ignore income taxes in this problem.) Neighbors Corporation is considering a project that would require an investment of $359,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows:

Explanation / Answer

Initial Investment = $359000

Annual net cash flow = Net operating income + Non cash expense (Depreciation) = $58000+$49000

= $107000

Therefore payback period = $359000/$107000 = 3.35514 i.e. 3.4 years

The payback period of the project is closest to 3.4 years

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