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a firm is evaluating a potential investment that is expected to generate cash flows of $100...

a firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 thru 4 and $400 in years 5 thru 7. The initial investment is $750. What is the payback for this investment ?

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Answer #1

Pay Bsck period is the period in which initial investment is recovered.

Payback period:

Pay Back period = Year In which least +ve Outstand amount + [ Amount to be recovered in later yeasr at that year / Amount Collected in next year ]

= 4 Years + $ 350 / $ 400

= 4 Years + 0.875 years

= 4.875 Years

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