Question

Project L requires an initial outlay at t = 0 of $50,000, its expected cash inflows are $15,000 per year for 7 years, and its WACC is 11%. What is the project's payback? Round your answer to two decimal places.

Answer 1

Payback Period is the period need to recover the initial investment using the Cash Inflows

Year	Cash Flow	Net Invested Cash
0		-50,000
1	+15,000	-35,000
2	+15,000	-20,000
3	+15,000	-5,000

To recover balance $5,000 we need = 5,000/15,000 = 0.33 years

Therefore, Payback Period = 3.33 years