Project K has an initial requi
Project K has an initial required investment of $1,000,000. Theproject will result in operating cash inflows of $200,000 per yearfor Years 1-3, $100,000 per year for Years 4-9, and have no cashflows in Year 10 and beyond. Calculate the payback period forProject K.
Answer:
| Year | Cash Flow | Cumulative Cash flow |
| 0 | $ (1,000,000) | $ (1,000,000) |
| 1 | $ 200,000 | $ (800,000) |
| 2 | $ 200,000 | $ (600,000) |
| 3 | $ 200,000 | $ (400,000) |
| 4 | $ 100,000 | $ (300,000) |
| 5 | $ 100,000 | $ (200,000) |
| 6 | $ 100,000 | $ (100,000) |
| 7 | $ 100,000 | $ – |
| 8 | $ 100,000 | $ 100,000 |
| 9 | $ 100,000 | $ 200,000 |
Payback periodis 7 years.
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