Question

A project has an initial cost of $60,000, expected net cash inflows of $13,000 per year for 7 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places.

Answer 1

Period	Cash Flow	Present Value Factor	Present Value	Cumulative Present Value
1	13000	0.9009009009	11711.71	11711.71
2	13000	0.81162243324	10551.09	22262.8
3	13000	0.73119138129	9505	31767.8
4	13000	0.65873097413	8563.50	40331.3
5	13000	0.59345132804	7714.87	48046.17
6	13000	0.53464083607	6950.33	54996.5
7	13000	0.48165841087	6261.60	61258.1

Normal Payback Period = 60000 / 13000 = 4.62 years

Discounted Payback Period = 6 + ((60000 - 54996.5) / 6261.60)

= 6 + 0.799

= 6.80 years