question archive Find the Payback period for the following project: Project X Initial Outlay $8,050 Year 1 $3,810 Year 2 $3,830 Year 3 $3,960 Year 4 $6,830 The answer should be calculated to two decimal places
Find the Payback period for the following project: Project X Initial Outlay $8,050 Year 1 $3,810 Year 2 $3,830 Year 3 $3,960 Year 4 $6,830 The answer should be calculated to two decimal places
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Find the Payback period for the following project:
Project X
Initial Outlay $8,050
Year 1 $3,810
Year 2 $3,830
Year 3 $3,960
Year 4 $6,830
The answer should be calculated to two decimal places.
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Payback period will be 2 years 1 month.
Step-by-step explanation
Payback period refers to amount of time amount of time it takes to recover the cost of investment or reach breakeven.
It is calculated by dividing cost of investment by the annual cash flows. Its also calculated from subtraction of cashflows from the initial cost until the initial cost is fully recovered.
Workings;
Year 1 ($8050-$3810)=$4240
Year 2($4240-$3830)=$410
Year 3($410/$3960)*12=1 month
Total period 2 years 1 month.
Projects with shorter payback periods are desirable.
