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6 March, 14:40

A project with an initial cost of $27,600 is expected to generate cash flows of $6,700,$8,800, $9,150, $8,050, and $7,500 over each of the next five years, respectively. What is the project's payback period

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  1. 6 March, 17:41
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    3.36 years

    Explanation:

    The computation of the payback period is shown below:

    Given that

    In year 0 = $27,600

    In year 1 = $6,700

    In year 2 = $8,800

    In year 3 = $9,150

    In year 4 = $8,050

    In year 5 = $7,500

    If we added the first 3 year cash inflows than it would be $24,650

    Now we deduct the $24,650 from the $27,600, so the amount left is $2,950 and if we added the fourth year cash inflow so the total amount exceeds to the initial investment. So, we subtract it

    And, the next year cash inflow is $8,050

    So, the payback period equal to

    = 3 years + $2,950 : $8,050

    = 3.36 years
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