Question

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A process for producing the mosquito repellant Deet has an initial investment of $155,000 with annual costs of $45,000. Income is expected to be $90,000 per year.

What is the payback period at i = 0% per year? At i = 12% per year? (Note: Round your answers to the nearest integer.)

The payback period at i = 0% is determined to be________ years.

The payback period at i = 12% is determined to be _______ years.

Answer 1

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Answer:

i = 0%

Net cash flow = 90000-45000 = 45000

Payback period = Initial investment/Cash flow

= 155000/45000 = 3.44 years ~ 4 years ( Note : Try with 3 years if 4 comes as incorrect)

i = 12 years

Discounted Payback Period Calculator – Results
Year	CF	NCF	PV Factor	DCF	CCF
0	$-155,000	$-155,000	1	$-155,000	$-155,000
1	$45,000	$-110,000	0.89	$40,178.57	$-114,821.43
2	$45,000	$-65,000	0.8	$35,873.72	$-78,947.7
3	$45,000	$-20,000	0.71	$32,030.11	$-46,917.59
4	$45,000	$25,000	0.64	$28,598.31	$-18,319.28
5	$45,000	$70,000	0.57	$25,534.21	$7,214.93

Discounted Payback Period: 4.72 years.
Discounted Payback Period = X + Y/Z = 4 + |-18319.28| / 25534.21 ≈ 4.72 ~ 5 years