Question

MacHinery Manufacturing Company is considering a three-year project that has a cost of $70,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback? (Show calculations.)

Select one:

a. 2.22 years

b. 2.17 years

c. 2.59 years

d. 2.43 years

Answer 1

As per details given in the question -
Correct Answer is Option -B
Project Payback Period is 2.17 years

Year	Cash flow	Cummulative Cash flow
0	-70000	-70000
1	33100	33100
2	31500	64600
3	31200	95800

Payback period = 2 years + {( 70000 - 64600 )/ 31200}
Payback Period = 2 years + 0.17
Payback Period = 2.17 years

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