Question

Redwood Corporation is considering two alternative investment proposals with the following​ data: Proposal X Proposal Y Investment ​$830,000 ​$510,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years ​$135,000 ​$83,000 Residual value ​$50,000 ​$minus Depreciation method Straightminusline Straightminusline Required rate of return ​16% ​9% How long is the payback period for Proposal​ X?

Answer 1

Answer:

= 6.15 years

Explanation:

The payback period is the estimated length of time in years it takes

the net cash inflow from a project to equate the net cash the initial cost

Where a project is expected to generate a series of  equal annual net cash inflow, the payback period can be calculated as:

The initial invest /Net cash inflow per year

So the payback period for project X

= $830,000/135,000

= 6.14

= 6.15 years