Question

A project has an initial cost of $57,000, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 13%. What is the project's payback period? Round your answer to two decimal places.

Answer 1

Payback Period for the Project

- The Payback Period refers to the period in which the proposed project will generate the cash inflows to recover the Initial Investment costs.

- Payback period computes the number of years taken to recover the total amount of money invested in the project

Project's payback period is calculated as follows

Project's Payback Period = Initial Investment / Annual Cash Inflow

= $57,000 / $12,000

= 4.75 Years

“Hence, the Project's Payback Period = 4.75 Years”