What is the payback period for Tangshan Mining company's new project if its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3 and $1,800,000 in year 4?
A) 4.33 years
B) 3.33 years
C) 2.33 years
D) None of the above

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to find out the time it takes to recover the initial investment based on the cash inflows. 
Using the formula of payback period:
Cost of investment/Annual cash inflow = Payback period
$5,000,000/($1,800,000+$1,900,000+$700,000+$1,800,000) = 3.33 years
Therefore, the payback period for Tangshan Mining company's new project is 3.33 years. Option B is the correct answer.

What Is the Payback Period for Tangshan Mining Company's New