Project L requires an initial outlay at t = 0 of $53,000, its expected cash inflows are $11,000 per year for 11 years, and its WACC is 12%. What is the project's payback? Round your answer to two decimal places.
It is to be noted that only the project payback period is required, so we will not be discounting the cash flows with the weighted average cost of capital because discounted payback period is not required hence we will be only using the normal payback period and not the discounted payback period because question is specifically asking about payback period.
It can be seen that initial outlays at the beginning is 53000
Cash flow received in first four years are 11000
Cash flow still needed in 5th year= 9000(53000-44000)
So we will be looking at a payback period between 4 to 5 years because initial outlay as has been completely recovered in fifth year.
Payback period = 4+(53000-44000)/11000)
= 4+(9000/11000)
= 4.8181
Hence the payback period is 4.82 Years.
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