The payback period for a project that requires an initial outlay of $248,607 is expected to generate $40,000 per year for 9 years. is 6.22.
Payback length is defined as the wide variety of years required to recover the original cash funding. In different words, it's far the time period on the quit of which a system, facility, or different funding has produced enough net revenue to get better its investment costs.
The Payback period suggests how long it takes for a business to recoup an investment. This sort of analysis allows corporations to examine alternative investment possibilities and decide on a venture that returns its investment in the shortest time if that criteria is critical to them.
Given,
The initial outlay of Project = $ 248,607
Project life = 9 years
Annual cash flow = $40,000
Payback refers to the amount of time it takes to recover the cost of investment.
The year before the payback period occurs is 5th year up to which $200000 is recovered
Amount to be recovered = $248607 - $200000
$ 48607
Payback period = Year before payback + Amount to be recovered
Cash inflows of the year during which the payback period occurs in the 6th year = $40000
Payback period = 5 + $48607/$40000
5 + 1.215
= 6. 22 years
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