Calculate the payback of a 20-year project with a cost of $400,000 and annual cash flows of $50,000 in years 1-10 and $25,000 in years 11-20. The company's required rate of return is 10%.
A) 4
B) 5
C) 6
D) 7
E) 8

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the project to recover its initial investment. In this case, the project recovers $50,000 annually for the first 10 years, totaling $500,000, which exceeds the initial cost of $400,000. Therefore, the payback period is within the first 8 years.

Calculate the Payback of a 20-Year Project with a Cost