Suppose your firm is considering investing in a project with the cash flows show
ID: 2793627 • Letter: S
Question
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Payback _______ years?
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Explanation / Answer
This would go on upto year 6.
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+(1260/1620)
=2.78 years(Approx)
Year Cash flow Cumulative Cash flow 0 (4900) (4900) 1 1220 (3680) 2 2420 (1260) 3 1620 360Related Questions
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