a) How long does it take to recover the investment?
How many years is the payback period
Homework Answers
| Year | Outflow | Inflow | Net |
| 0 | $36000 | - | -$36000 |
| 1 | $4500 | $50000 | $9500 (After adjusting initial outflow as well) |
| 2 | $4500 | $50000 | $45500 |
| 3 | $4500 | $50000 | $45500 |
| 4 | $4500 | $50000 | $45500 |
| 5 | $4500 | $50000 + 3000 (Salvage) | $48500 |
From the above table it is clear that investment is recovered in the 1st year even after deducting the operation costs of that year. After that there is steady cash inflow till the end of 5 useful life
Thus,Payback period is 1 year
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