The oil exploration project costs $290 million upfront. The annual net benefit is expected to be...
The oil exploration project costs $290 million upfront. The annual net benefit is expected to be $35 million. The company will only consider projects with payback period of less than 8 years. What is the payback period and is the project acceptable?
a. 9 years; reject
b. 9 years; acceptable
c. 8 years; acceptable
Homework Answers
a. 9 years ; reject
Number of years it will take to recover the cost =$290 millions/$35 millions = 8.285 years
The payback period is grater than 8 years ,so the project will be rejected.
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