question archive A company considers a project that will require an initial investment of Php 500,000
A company considers a project that will require an initial investment of Php 500,000
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A company considers a project that will require an initial investment of Php 500,000.00 and is expected to generate future cash flows of Php 200,000 for the first 3 years and php 100,000 for the fourth to the seventh years. The project’s payback period is:
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solution 3
choice 2
Select one:
a. 3.33
b. 3.5
c. 1.67
d. 2.5
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| Years | Cashflow | Cumulative Cashflow |
| 0 | (500,000) | (500,000) |
| 1 | 200,000 | (300,000) |
| 2 | 200,000 | (100,000) |
| 3 | 200,000 | 100,000 |
| 4 | 100,000 | 200,000 |
| 5 | 100,000 | 300,000 |
| 6 | 100,000 | 400,000 |
| 7 | 100,000 | 500,000 |
Payback period = full year before recovery + Cumulative cashflow before full recovery/ cashflow in the year after recovery
= 2 + 100,000 / 200,000
= 2 + 0.5
= 2.5 years
Answer: D) 2.5
