Use the information for the question(s) below.
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below:
The appropriate discount rate for this project is 16%.
-The payback period for this project is closest to:
A) 2.1 years
B) 3.0 years
C) 2 years
D) 2.2 years

Question

Use the information for the question(s) below.
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below:
  The appropriate discount rate for this project is 16%.
-The payback period for this project is closest to:
A) 2.1 years 
B) 3.0 years 
C) 2 years 
D) 2.2 years

Quizplus · Accepted Answer

A) It is clear that the project will not be paid off after 2 years. The balance due after the second year is equal to 450,000 - 200,000 - 225,000 = $25,000, so to find the fractional year we take 25,000/275,000 = .0909 so the payback period = 2.09 years

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