Question

Check My Work (3 remaining) Click here to read the eBook: Payback Period PAYBACK PERIOD Project L costs $45,000, its expected cash inflows are $15,000 per year for 11 years, and its WACC is 1096, what is the project's payback? Round your answer to two decimal places. years

Answer 1

Payback period calculation is the simple calcualtion for checking the
return of our Basis investment in year
CACULATION OF PAYBACK PERIOD
Period	Particulars	Inflow (Outflow)	PVF of $ 1 @ 10%	Present Value	Cumulative Present Value
0	Outflow	$                   -45,000	1.00000	$              -45,000.00	$              -45,000.00
1	Inflow	$                     15,000	0.90909	$               13,636.36	$              -31,363.64
2	Inflow	$                     15,000	0.82645	$               12,396.69	$              -18,966.94
3	Inflow	$                     15,000	0.75131	$               11,269.72	$                -7,697.22
4	Inflow	$                     15,000	0.68301	$               10,245.20	$                  2,547.98
5	Inflow	$                     15,000	0.62092	$                  9,313.82	$                11,861.80
6	Inflow	$                     15,000	0.56447	$                  8,467.11	$                20,328.91
7	Inflow	$                     15,000	0.51316	$                  7,697.37	$                28,026.28
8	Inflow	$                     15,000	0.46651	$                  6,997.61	$                35,023.89
9	Inflow	$                     15,000	0.42410	$                  6,361.46	$                41,385.36
10	Inflow	$                     15,000	0.38554	$                  5,783.15	$                47,168.51
11	Inflow	$                     15,000	0.35049	$                  5,257.41	$                52,425.92
All the investment is recovered in the year 4 but not all the whole year is required for this
So the we have to calculate the fraction as below,
Payback Period =		3 Years +	7,697.2	"/" By	$                10,245.20
Payback Period =		3 Years +	0.75
Payback Period =		3.75 Years
Answer =Pay back period = 3.75 Years