Homework Answers
Solution :-
Initial Investment = $10,000,000
Life = 10 Years
Depreciation Per Year = $10,000,000 / 10 = $1,000,000
Annual Revenue = $14,000,000
Annual Cost = $9,912,061
Depreciation = $1,000,000
Taxable Income = $14,000,000 - $9,921,061 - $1,000,000 = $3,078,939
Tax Expense = 12% * $3,078,939 = $369,472.68
After tax Income = $3,078,939 - $369,472.68 = $2,079,466.32
Add :- Depreciation = $1,000,000
Net Cash Flow Every Year = $2,079,466.32 + $1,000,000 = $3,079,466.32
Now Payback Period = Initial Investment / Cash flow every year
= $10,000,000 / $3,079,466.32
= 2.70 Years
Therefore Correct Answer is (b) that is 3 Years ( Approx )
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