A project has an initial cost of $57,000, expected net cash inflows of $11,000 per year for 7 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places.
The project's payback period denotes the time period in which the initial investment in a project is recovered.
The project's payback period is computed as follows:
Cash inflows for next 5 years is computed as follows:
= $ 11,000 x 5
= $ 55,000
Cash inflows for next 6 years is computed as follows:
= $ 11,000 x 6
= $ 66,000
It means the payback period falls between year 5 and year 6 and is computed as follows:
= 5 years + remaining investment to be recovered / year 6 cash inflow
= 5 years + ( $ 57,000 - $ 55,000 ) / $ 11,000
= 5.18 years Approximately
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