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An investment project provides cash inflows of $1325 per year for eight yea payback period if the initial cost is $4,200? Or $5250 or $11,600?

An investment project provides cash inflows of $1325 per year for eight yea payback period if the initial cost is $4,200? Or $5250 or $11,600?

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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Title: Determining the Payback Period of an Investment Project --- **Problem Statement**: An investment project provides cash inflows of $1,325 per year for eight years. What is the project's payback period if the initial cost is $4,200? Or $5,250? Or $11,600? --- **Explanation**: To determine the payback period, we must calculate how long it will take for the annual cash inflows to repay the initial cost of the investment. **Step-by-Step Solution**: 1. **When the initial cost is $4,200**: - Annual cash inflow = $1,325 - Payback Period = Initial Investment / Annual Cash Inflow - Payback Period = $4,200 / $1,325 ≈ 3.17 years Therefore, it takes approximately 3.17 years to recover the initial investment of $4,200. 2. **When the initial cost is $5,250**: - Annual cash inflow = $1,325 - Payback Period = Initial Investment / Annual Cash Inflow - Payback Period = $5,250 / $1,325 ≈ 3.96 years Therefore, it takes approximately 3.96 years to recover the initial investment of $5,250. 3. **When the initial cost is $11,600**: - Annual cash inflow = $1,325 - Payback Period = Initial Investment / Annual Cash Inflow - Payback Period = $11,600 / $1,325 ≈ 8.75 years Therefore, it takes approximately 8.75 years to recover the initial investment of $11,600. **Conclusion**: By using the payback period formula, we are able to determine the amount of time needed to recover the initial investment for each of the given initial costs. --- **Visual Explanation (Assume a graph might be included)**: _Graph/Diagram Description_: - **X-Axis**: Number of years - **Y-Axis**: Cumulative Cash Inflow ($) - **Lines representing each scenario**: - Line 1 representing scenario 1 ($4,200 initial cost) intersects the cumulative cash inflow at about 3.17 years. - Line 2 representing scenario 2 ($5,250 initial cost) intersects
Transcribed Image Text:Title: Determining the Payback Period of an Investment Project --- **Problem Statement**: An investment project provides cash inflows of $1,325 per year for eight years. What is the project's payback period if the initial cost is $4,200? Or $5,250? Or $11,600? --- **Explanation**: To determine the payback period, we must calculate how long it will take for the annual cash inflows to repay the initial cost of the investment. **Step-by-Step Solution**: 1. **When the initial cost is $4,200**: - Annual cash inflow = $1,325 - Payback Period = Initial Investment / Annual Cash Inflow - Payback Period = $4,200 / $1,325 ≈ 3.17 years Therefore, it takes approximately 3.17 years to recover the initial investment of $4,200. 2. **When the initial cost is $5,250**: - Annual cash inflow = $1,325 - Payback Period = Initial Investment / Annual Cash Inflow - Payback Period = $5,250 / $1,325 ≈ 3.96 years Therefore, it takes approximately 3.96 years to recover the initial investment of $5,250. 3. **When the initial cost is $11,600**: - Annual cash inflow = $1,325 - Payback Period = Initial Investment / Annual Cash Inflow - Payback Period = $11,600 / $1,325 ≈ 8.75 years Therefore, it takes approximately 8.75 years to recover the initial investment of $11,600. **Conclusion**: By using the payback period formula, we are able to determine the amount of time needed to recover the initial investment for each of the given initial costs. --- **Visual Explanation (Assume a graph might be included)**: _Graph/Diagram Description_: - **X-Axis**: Number of years - **Y-Axis**: Cumulative Cash Inflow ($) - **Lines representing each scenario**: - Line 1 representing scenario 1 ($4,200 initial cost) intersects the cumulative cash inflow at about 3.17 years. - Line 2 representing scenario 2 ($5,250 initial cost) intersects
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