The payback period of a project that costs $1,000 initially and promises after-tax cash inflows of $300 each year for the next three years is 0.333 years.

Question

Quizplus · Accepted Answer

To calculate the payback period, you need to divide the initial investment ($1,000) by the annual cash inflows until the sum equals or exceeds the initial investment.

In this case, the payback period would be:

$1,000 / $300/year = 3.33 years

Therefore, the statement in the question is false.

The Payback Period of a Project That Costs $1,000 Initially