Question

1. You must find the payback for a project, and you have misplaced some of the...


1. You must find the payback for a project, and you have misplaced some of the information that you were given. You know that the project will generate positive cash flows of $60,000 per year at the end of each of the next 5 years, that its NPV is $75,000, and that the company’s WACC is 10%. What is the project’s regular payback
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Answer #1

Payback Period =Initial Investment / Cash Inflow per Period

Cash inflow per period = $60,000

Initial investment = ?  

We need to calculate initial investment:

NPV = PV of cash inflows - PV of cash outflows

$75,000 = $60,000 * PVF@10%,5years - Initial investment * 1.000

$75,000 = $60,000 * 3.791 - Initial investment

Initial investment = $1,52,460

Payback Period =Initial Investment / Cash Inflow per Period

Payback Period =$1,52,460 / $60,000

Payback Period = 2.54 years

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