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4. Consider an iìnvestment of $100,000 that yields $20,000 after year 1, $30,000 after year 2, $60,000 after year 3, and $70,000 after year 4. (a) What is the payback period? Show enough work to support your answer.

4. Consider an iìnvestment of $100,000 that yields $20,000 after year 1, $30,000 after year 2, $60,000 after year 3, and $70,000 after year 4. (a) What is the payback period? Show enough work to support your answer.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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4. Consider an investment of $100,000 that yields $20,000 after year 1, $30,000 after year 2, $60,000 after year 3, and $70,000 after year 4. (a) What is the payback period? Show enough work to support your answer.
Transcribed Image Text:4. Consider an investment of $100,000 that yields $20,000 after year 1, $30,000 after year 2, $60,000 after year 3, and $70,000 after year 4. (a) What is the payback period? Show enough work to support your answer.
Expert Solution
Step 1

To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the project has created:

$20,000 + $30,000 = $50,000 in cash flows.

The project still needs to create another:

$100,0000 - $50,000 = $50,000 in cash flows.

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