Question

Consider the accompanying project balance diagram for a typical investment project with a service life of five years. The numbers in the figure indicate the beginning project balances (a) From the project balance diagram, reconstruct the project's original cash flows. (b) What is the project's conventional payback period (without interest)? Assume that the cash flows occur continuously throughout the year. Click the icon to view the project balance diagram (a) Reconstruct the original cash flows of the project. (Round to the nearest dollar.) - $10.000 Project Balance - $10,000 - 10,600 - 4.296 3.017 8,500 12,860 (b) The project's conventional payback period (without interest) is yows(Round to one decimal place) Enter your answer in each of the answer boxes

Answer 1

Answer:

n	An	Project Balance Pb
0	-10000	-10000
1	-600	-10600
2	6304	-4296
3	8000	3017
4	5483	8500
5	4360	12860

Cashflow for nth year = Project Balance for nth Year -Project Balance for (n-1)th Year

Since positive balance is achieved in year 3 so payback period will be between year 2 and year 3.

Payback period = 2+ Project balnce of Year 2/ Cash flow for year 3=2+4296/8000=2.537