Question
A project requires a $1,100,000 initial investment for new machinery. The project is expected to yield income of $104,000
A project requires a $1,100,000 initial investment for new machinery. The project is expected to yield income of $104,000 per year and net cash flows of $250,000 per year for the next five years. The project's payback period is
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Koala Tutor
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The payback period is the time it takes for an investment to generate an amount of income or cash flow equal to the cost of the investment. In this case, the initial investment is $1,100,000 and the annual net cash flow is $250,000.
To calculate the payback period, we divide the initial investment by the annual net cash flow:
$1,100,000 / $250,000 = 4.4 years
So, the project's payback period is 4.4 years.
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