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Unique, Inc., is considering an unusual project. This project requires an initial cash investment of $24,000....

Unique, Inc., is considering an unusual project. This project requires an initial cash investment of $24,000. The project will generate cash inflows of $7,500 in the first year. Then, the project will do nothing for 2 years, after which time cash inflows of $10,000 will be generated for 3 years. How long will it take Unique, Inc., to recover its $24,000 investment?

ANSWER IS 4.65 YEARS PLEASE SHOW STEPS WITHOUT USING EXCEL

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Answer:

Let N be the number of years taken to recover the investment

Initial investment = 24000

Let us first calculate the remaining cash flows to be recovered after year 3 (Since this is the first set of cash flows to be recovered with 7500 in year 1 aand 0 in year 2 and 3)

=> Remaining CF = 24000 - 7500 = 16500

After year 4 we find the remianing cash flow to be

16500 - 10000 = 6500

The remaining cash flow becomes zero between the fourth and fifth year. The time taken to recover the 6500 is

=> Remaining CF to be recovered/CF in fifth year

= 6500/10000 = 0.65

Hence total time period = 4th year + 0.65 = 4.65 years

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