Practice Question
A project requires an upfront investment of $100,000 and is expected to generate $30,000 annually for 5 years. What is the payback period?
Answer +
C
Step-by-step solutions +
Step 1: Identify initial investment and annual cash inflow.
- Initial Investment = $100,000
- Annual Cash Flow = $30,000
Step 2: Apply the payback period formula:
Payback Period = Initial Investment / Annual Cash Flow
Step 3: Calculate:
= $100,000 / $30,000 = 3.33 years
Final Answer: The payback period is approximately 4 years.
- Initial Investment = $100,000
- Annual Cash Flow = $30,000
Step 2: Apply the payback period formula:
Payback Period = Initial Investment / Annual Cash Flow
Step 3: Calculate:
= $100,000 / $30,000 = 3.33 years
Final Answer: The payback period is approximately 4 years.