Consider the following threeminusyear project. The initial afterminustax outlay or afterminustax cost is $1,500,000. The future afterminustax cash inflows for years 1, 2, 3 and 4 are: $800,000, $800,000, $300,000 and $100,000, respectively. What is the payback period without discounting cash flows?

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12 March, 05:28

Consider the following threeminusyear project. The initial afterminustax outlay or afterminustax cost is $1,500,000. The future afterminustax cash inflows for years 1, 2, 3 and 4 are: $800,000, $800,000, $300,000 and $100,000, respectively. What is the payback period without discounting cash flows?

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Stanley Holloway · Answer 1

1.875 years

Explanation:

The payback period is the period required for a project to repay its initial investments.

Pay back period = initial investments / initial investments

In this case: Initial investments: $ 1,500,000.00

cash flows:

Year initial invest Accumulated Depreciation

0 (1,500,000.00) (1,500,00.00

1 800,000 800,000

2 700,000 700,000/800,00

Payback period = 1 year + 700,000/800,000

= 1.875 years