Practice Question
If a project costs $200,000 and generates cash inflows of $40,000 for 5 years, what is the payback period?
Answer +
B
Step-by-step solutions +
Step 1: Identify the initial investment and annual cash flow.
Initial Investment = $200,000
Annual Cash Flow = $40,000
Step 2: Use the payback period formula:
Payback Period = Initial Investment / Annual Cash Flow
Payback Period = $200,000 / $40,000 = 5 years
Conclusion: It will take 5 years for the project to recover its initial investment.
Initial Investment = $200,000
Annual Cash Flow = $40,000
Step 2: Use the payback period formula:
Payback Period = Initial Investment / Annual Cash Flow
Payback Period = $200,000 / $40,000 = 5 years
Conclusion: It will take 5 years for the project to recover its initial investment.