Question

Nano Specialist is considering an upgrade project. The estimated cash flows from the upgrade project appear below. What is the project's payback period? Note that year 0 and year 1 cash flows are negative. (Answer in years, round to 2 places) Year 0 cash flow = -85,000 Year 1 cash flow = -55,000 Year 2 cash flow = 11,000 Year 3 cash flow = 41,000 Year 4 cash flow = 30,000 Year 5 cash flow = 25,000 Year 6 cash flow = 23,000 Year 7 cash flow = 40,000

Answer 1

Payback Period= full years until recovery + unrecovered cost at the start of the year/cash flow during the year

= 6 years + $10,000/ $40,000

                         = 6 years + 0.25

                         = 6.25 years.

Therefore, the project’s payback period is 6.25 years.

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