what is the payback period on the following project? year project cash flows 0 (250,000) 1 75,000 2 125,000 3 65,000 4 150,000

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04-11-2022
Business

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what is the payback period on the following project? year project cash flows 0 (250,000) 1 75,000 2 125,000 3 65,000 4 150,000

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baliyansmiriti baliyansmiriti · Answer 1 · 2022-11-09T11:31:31-05:00

The payback period on the following project is 2.81 years

We want to see how many years it will take us to recover the initial cash outlay. So, we need to find out how many years it takes to make $54 K.

After 1 year = $21 K

After 2 yrs = 21 + 14 = $35K

At the end of year 2, we are only $19 K away from recovering the initial outlay ($54-$35 = $19 K).

As you can see, in year 3 we make $23.4 thousand.

This surpasses the amount needed to recover the IO.

Therefore, we know that the payback period will be somewhere between year 2 and 3.

To find the exact point in the year, we divide the remaining amount to payback by the total amount received for the year.

19/23.4 = .81Thus, the payback period is 2.81 years.

NPV ($4,881.33)

IRR 3.94%

PI 0.91

Payback 2.81

In easy terms, the payback length is calculated via way of means of dividing the price of the funding via way of means of the yearly coins waft till the cumulative coins waft is positive, that is the payback year. Payback length is normally expressed in years.

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