Question

You are a real estate agent thinking of placing a sign advertising your services at a...

You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $ 5 300 and will be posted for one year. You expect that it will generate additional revenue of $ 742 a month. What is the payback​ period?

The payback period is ____months.  ​(Round to one decimal​ place.)

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Answer #1
Year Cash flow stream Cumulative cash flow
0 -5300 -5300
1 742 -4558
2 742 -3816
3 742 -3074
4 742 -2332
5 742 -1590
6 742 -848
7 742 -106
8 742 636
9 742 1378
10 742 2120
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between month 7 and 8
therefore by interpolation payback period = 7 + (0-(-106))/(636-(-106))
7.1 months
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