Calculate the (regular) payback for a project with the following projected cash flows:
Year | Cash Flow |
0 | -2,500 |
1 | 600 |
2 | 1300 |
3 | 766 |
4 | 600 |
Assume the risk-adjusted WACC is 8.6%.
Enter your answer as a number with 2 decimal places of precision (i.e. 1.23)
Payback period is the number of years it takes to re-earn the invested amount
Invested Amount = $2,500
Cash flow in year1 = $600.
Cash flow in year2 = $1300. Cumulative cash flow in year2 = $600 + $1300 = $1900
Cash flow in year3 = $766. Cumulative cash flow in year2 = $1900 + $766 = $2666. This becomes more than the amount required. In order to complete payback, you only needed 2500 - 1900 = $600 mil.
So fraction of year 3 = $600/$766 = 0.78 year
Payback = 2 + 0.78 years = 2.78 years
Calculate the (regular) payback for a project with the following projected cash flows: Year Cash Flow ...
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