Question

The process for producing a fruit-tree pesticide has a first cost of $200,000 with annual costs...

The process for producing a fruit-tree pesticide has a first cost of $200,000 with annual costs of $50,000 and revenue of $90,000 per year. What is the payback period at (a) i=0% (b) i=12% per year?

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Answer #1

annual cash flow=90000-50000=40000

(a)

payback period at 0%=200000/40000=5 years

(b)

Year CF Discounted CF Cumulative CF
0 -200000 -200000.00 -200000.00
1 40000 35714.29 -164285.71
2 40000 31887.76 -132397.96
3 40000 28471.21 -103926.75
4 40000 25420.72 -78506.03
5 40000 22697.07 -55808.95
6 40000 20265.24 -35543.71
7 40000 18093.97 -17449.74
8 40000 16155.33 -1294.41
9 40000 14424.40 13129.99

Payback period=8+(1294.41/14424.40)=8.09 years

the above is answer..

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