What is the payback period of an irrigation system that costs $25,000 and has returns of:...
What is the payback period of an irrigation system that costs $25,000 and has returns of: $12,500 in year one, $10,000 in year two, $7,500 in year three, and $5,000 in year four? All cash outflows occur at the end of the year.
Agriculture Finance
Homework Answers
| Year | Cash Flows | Cumulative Cash Flows | Investment still to be covered |
| 0 | -$25,000 | -$25,000 | |
| 1 | $12,500 | $12,500 | -$12,500 |
| 2 | $10,000 | $22,500 | -$2,500 |
| 3 | $7,500 | $30,000 | $5,000 |
| 4 | $5,000 | $35,000 | $10,000 |
Payback period = Year before investment fully covered + [Investment still to be covered / Cash flows during the period)
Payback period = Year 2 + [$2,500 / $7,500]
Payback period = 2.333 years
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to last nine years, and will generate an after-tax income of
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