1. A project has an initial cost of $25,000 and cash inflows of $5,400, $5,200,

Question

1. A project has an initial cost of $25,000 and cash inflows of $5,400, $5,200, $17,600, and $9,750 over the next 4 years, respectively. What is the payback period?

4.77 years

3.77 years

2.82 years

1.82 years

2. A project has an initial cash outflow of $990 and cash inflows of $285 per year for 4 years. What is the discounted payback period at a discount rate of 9.1 percent?

Never

3.79 years

2.86 years

3.48 years

1. A project has an initial cost of $25,000 and cash inflows of $5,400, $5,200, $17,600, and $9,750 over the next 4 years, respectively. What is the payback period?

Explanation / Answer

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

2+(14400/17600)=2.82 years(Approx)

2.

Discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=Never

Year Cash flows Cumulative Cash flows 0 (25000) (25000) 1 5400 (19600) 2 5200 (14400) 3 17600 3200 4 9750 12950

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