Problem 12-5 Payback A project has an initial cost of $52,925, expected net cash

Question

Problem 12-5 Payback A project has an initial cost of $52,925, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places. Problem 12-5 Payback A project has an initial cost of $52,925, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places. Problem 12-5 Payback A project has an initial cost of $52,925, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places.

Explanation / Answer

Solution: Year Cash Flow - Project Cumulative cash flow 0 -52,925 -52,925 1 14,000 -38,925 2 14,000 -24,925 3 14,000 -10,925 4 14,000 3,075 5 14,000 17,075 6 14,000 31,075 7 14,000 45,075 Project Payback period = 3 years + Remaining balance/4th year cash inflows = 3 + 10925/14,000 = 3 + 0.78035 =3.78 years Note: Though question has given detail of cost of capital but with of cost of capital discounted payback period . For simple payback period cost of capital is not required. Please feel free to ask if anything about above solution in comment section of the question.

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