Question

Find Payback Period for a Project that has WACC of 6.5% and has a 4 year payback:

Year Initial investment:(-580,000$)

1 530,000$

2 530,000 $

3 530,000$

4 (- 108,0000 ) (negative)

Am getting a wrong number,Please show details

Answer 1

Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

=1+(50000/530000)

= 1.094339623 years

Hence the correct answer is 1.09 years

Note:

Year	Investment	Cash Inflow	Net Cash Flow
0	-5,80,000.00	-	-5,80,000.00	(Investment + Cash Inflow)
1	-	5,30,000.00	-50,000.00	(Net Cash Flow + Cash Inflow)
2	-	5,30,000.00	4,80,000.00	(Net Cash Flow + Cash Inflow)
3	-	5,30,000.00	10,10,000.00	(Net Cash Flow + Cash Inflow)
4	-	-1,08,000.00	9,02,000.00	(Net Cash Flow + Cash Inflow)