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ABC Company is considering a new project that will require an initial investmen…

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Wize University Introduction to Finance Textbook > Capital Budgeting

Payback Period

3 Activities

ABC Company is considering a new project that will require an initial investment of $100,000. The project is expected to generate the following cash flows over the next five years:
Year 1: $30,000 Year 2: $40,000 Year 3: $50,000 Year 4: $40,000 Year 5: $30,000
The required rate of return for this project is 10%.

Calculate the payback period of this project.
More Payback Period Questions:
Question 2
A project requires an initial investment of $100,000 and will return $30,000 per year indefinitely. The firm's average cost of capital is 8% and this project is slightly riskier than their usual operations.
Risk premiums:
Question 1
A firm is considering a project with an initial after-tax cash outflow of $5,000 and inflows of $1,000 in year 1, $6,000 in year 2 and $3,000 in year 3. The firm's cost of capital is 6% .
Compute the payback period and discounted payback period for this project.