Question

A project costs $75000 and is expected to return profits of $10000 per year. Calculate the payback period to 2 decimal places. (Use BA II Plus calculator)

Answer 1

Payback period (fixed annual cashflow) = initial cost / annual net cashflow

= $75000/$10000

= 7.50 years

In order to calculate same in BA ii plus calculator:

Step 1 = CF0 = -75,000 enter

Step2 = CF1 = 10000 enter

Step 3 = F01 = 10 ( this step asks you the frequency of cashflow 1, since we don't know the years, you can

Input any higher random number than your expected PB) enter

Step 4 = press npv and enter I = 0, enter

Step 5 = press down button and select PB and click CPT.