The Blue Goose is considering a project with an initial cost of $42,000 The project will...
The Blue Goose is considering a project with an initial cost of $42,000 The project will produce cash inflows of $8000 a year for the first 2 years and $12,000 a year for the next 3 years. What is the payback period?
Homework Answers
| Year | Cash flows | Cumulative Cash flows |
| 0 | (42000) | (42000) |
| 1 | 8000 | (34000) |
| 2 | 8000 | (26000) |
| 3 | 12000 | (14000) |
| 4 | 12000 | (2000) |
| 5 | 12000 | 10,000 |
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=4+(2000/12000)
=4.17 years(Approx)
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