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14 April, 14:17

A firm is evaluating a capital budgeting project that generates cash inflows equal to $50 per year for the next five years. If the project's traditional payback period (PB) is 3.6 years, what is its initial cost? a. $180 b. $200 c. $140 d. $120 e. $150

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  1. 14 April, 17:33
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    Initial Cost = $180

    Explanation:

    Payback period estimates the time an investment projects resulting cash flows take to recover the initial amount o=invested in the project. A traditional payback period doesnot take present value into account and just focuses on the nominal recovery of the initial investment.

    If a capital budgeting project provides inflows of $50 per year and the payback period is 3.6 years, the initial investment is:

    3.6 = 50 + 50 + 50 + x

    Where x = 0.6 of 50

    and x = 0.6 * 50 = 30

    Initial cost = 50 + 50 + 50 + 30 = $180
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Home » Business » A firm is evaluating a capital budgeting project that generates cash inflows equal to $50 per year for the next five years. If the project's traditional payback period (PB) is 3.6 years, what is its initial cost? a. $180 b. $200 c. $140 d. $120 e.
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