George is considering setting up a business selling free-range chickens. He estimates his establishment costs will be $600,000 and his net cash flows for the first five years will be $100,000 in year 1, $200,000 in year 2, stabilising at $300,000 in year 3. The payback period for the investment is:

Question

Quizplus · Accepted Answer

The payback period is the time it takes for an investment to generate enough cash flow to cover the initial investment. In this case, the initial investment is $600,000. The net cash flows for the first three years are $100,000, $200,000, and $300,000, respectively. This means that the payback period is 3 years, as this is the time it takes for the net cash flows to cover the initial investment.

George Is Considering Setting Up a Business Selling Free-Range Chickens