Question

Next Page Page 1 of 3 Question 1 (1 point) What is the simple (undiscounted) payback period in years for a $100,000 project with expected cash flows of $19,000 each of the first two years and $9,000 for each year after. Your Answer: Answer

Answer 1

The simple payback period is computed as shown below:

Payback period is the time period in which we are able to recover our initial investment in the project.

Initial investment = $ 100,000

Cash flow till 8th year are as shown below:

= $ 19,000 x 2 + $ 9,000 x 6

= $ 92,000

So as can be seen after 8 years we are yet to recover the balance cost of $ 8,000, which implies that the payback period will lie between 8th and 9th year and is as shown below:

= 8 years + Balance investment to be recovered / next years cash flows

= 8 years + $ 8,000 / $ 9,000

= 8.89 years Approximately

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