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17. The Seattle Corporation has been presented with an investment opportunity that will yield cash flows...

17. The Seattle Corporation has been presented with an investment opportunity that will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is the regular payback period (not the discounted payback) for this investment?

answer: 4.86 years

how to get that answer, is there any shortcut on financial calculator?

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Answer #1
Project
Year Cash flow stream Cumulative cash flow
0 -150000 -150000
1 30000 -120000
2 30000 -90000
3 30000 -60000
4 30000 -30000
5 35000 5000
6 35000 40000
7 35000 75000
8 35000 110000
9 35000 145000
10 40000 185000
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 4 and 5
therefore by interpolation payback period = 4 + (0-(-30000))/(5000-(-30000))
4.86 Years
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