A project has estimated annual net cash flows of 65000 and i

A project has estimated annual net cash flows of $65,000 and is estimated to cost $481,000. What is the payback period? (Round your answer to 2 decimal places.) Years Payback Period

Solution

Answer

Year

Annual Net cash Flows

Cumulative Net cash flows

1

$           65,000.00

$                     65,000.00

2

$           65,000.00

$                 1,30,000.00

3

$           65,000.00

$                 1,95,000.00

4

$           65,000.00

$                 2,60,000.00

5

$           65,000.00

$                 3,25,000.00

6

$           65,000.00

$                3,90,000.00

7

$           65,000.00

$                 4,55,000.00

8

$           65,000.00

$                 5,20,000.00

The balance amount of $ 26,000 [$481,000 – $ 455,000] will be recovered somewhere in Year 8.

Time taken to recover balance amount in Year 8 = $ 26000 (ie balance amount) / $ 65,000 = 0.4 years

Year	Annual Net cash Flows	Cumulative Net cash flows
1	$           65,000.00	$                     65,000.00
2	$           65,000.00	$                 1,30,000.00
3	$           65,000.00	$                 1,95,000.00
4	$           65,000.00	$                 2,60,000.00
5	$           65,000.00	$                 3,25,000.00
6	$           65,000.00	$                3,90,000.00
7	$           65,000.00	$                 4,55,000.00
8	$           65,000.00	$                 5,20,000.00