Sarah Lindsay invested $300,000 in a project that pays her an even amount per year for 10 years.The payback period is 8 years.What are Sarah's yearly cash inflows from the project?

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the initial investment to be recovered. In Sarah's case, she invested $300,000 and the payback period is 8 years. Therefore, her yearly cash inflow should be $300,000/8 = $37,500. However, the question states that she receives an even amount per year for 10 years. To find that amount, we can calculate the total amount she will receive over 10 years, which is $37,500 x 10 = $375,000. Since she receives an even amount per year, we can divide this total by 10 to find her yearly cash inflows: $375,000/10 = $37,500. Therefore, the best choice is B, with a yearly cash inflow of $25,000.

Sarah Lindsay Invested $300,000 in a Project That Pays Her