   Chapter 11, Problem 4P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PAYBACK PERIOD Refer to Problem 11-1. What is the project’s payback?

Summary Introduction

To calculate: The payback period for the given project.

Payback Period:

It refers to the time period that is required to get an amount invested in a project with some return on it. In other words, it is the time that a project takes to repay the amount invested with some return attached to it.

Explanation

Given,

Cost of the project is $52,125. Life of project is 8 years. Cash inflow from project per year is$12,000.

Cost of capital of the project is 12%.

The formula to calculate payback period is,

PaybackPeriod=(YearofLastNegativeCumulativeCashFlow)+|LastNegativeCumulativeCashflow|(PositiveCashFlow

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