Redwood Corporation is considering two alternative investment proposals with the following dа ta: Proposal X Proposal Y Investment $830,000 $510,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $135,000 $83,000 Residual value $50,000 $minus Depreciation method Straightminusline Straightminusline Required rate of return 16% 9% How long is the payback period for Proposal X?

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Business

Zaniyah

30 December, 19:55

Redwood Corporation is considering two alternative investment proposals with the following dа ta: Proposal X Proposal Y Investment $830,000 $510,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $135,000 $83,000 Residual value $50,000 $minus Depreciation method Straightminusline Straightminusline Required rate of return 16% 9% How long is the payback period for Proposal X?

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Neveah Hanna · Answer 1

= 6.15 years

Explanation:

The payback period is the estimated length of time in years it takes

the net cash inflow from a project to equate the net cash the initial cost

Where a project is expected to generate a series of equal annual net cash inflow, the payback period can be calculated as:

The initial invest / Net cash inflow per year

So the payback period for project X

= $830,000/135,000

= 6.14

= 6.15 years