An investment project provides cash flows of $1,562 per year for 10 years. If the initial cost is $8,720, what is the payback period?
A) 7.36 years
B) 5.28 years
C) 5.58 years
D) 8.13 years
E) Never

Question

Quizplus · Accepted Answer

To calculate payback period, we divide the initial investment by the annual cash flows until the initial investment is recovered.

Initial Investment = $8,720
Annual Cash Flow = $1,562

Payback Period = Initial Investment / Annual Cash Flow

Payback Period = $8,720 / $1,562

Payback Period = 5.58 years

Therefore, the best choice is (C): 5.58 years.

An Investment Project Provides Cash Flows of $1,562 Per Year