Question

What is the payback period of a project with average annual cash outflows of $8,000, average annual cash inflows of $10,000 and an initial investment of $13,000

Answer 1

Answer:

It will take 3 years and 219 days to cover for the initial investment.

Explanation:

Giving the following information:

Annual cash flow= 13,000 - 8,000= $5,000

Initital investment= $13,000

The payback period is the time required to cover for the initial investment:

Year 1= 5,000 - 13,000= -8,000

Year 2= 5,000 - 8,000= -3,000

Year 3= 5,000 - 3,000= 2,000

To be more accurate:

(3,000/5,000)*365= 219 days

It will take 3 years and 219 days to cover for the initial investment.