A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the payback of the project.
A) 7 years
B) 6 years
C) 5 years
D) 4 years
E) 3 years

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the project to recoup its initial investment from its cash flows. Here, the project generates $100,000 annually for the first 25 years. Thus, it takes 5 years ($500,000 / $100,000) to recover the initial investment of $500,000.

A 50- Year Project Has a Cost of $500,000 and Has