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A project that costs $27,000 today will generate cash flows of $9,400 per year for seven...

A project that costs $27,000 today will generate cash flows of $9,400 per year for seven years. What is the project's payback period?

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Answer #1

Payback period- It is one of the methods of "Capital budgeting", It tells the length of time, required to cover the initial cost of the project so that profitability of project can be known and project can be approved accordingly. A shorter period is better and it recommends the project to approve while a longer period is not favorable.

Formula: Payback period = Initial Cost / Annual cash flow

Payback period = 27000 / 9400

Payback period = 2.8723404 or 2.87

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