(SOLVED) Company ABC Ltd is planning to make an investment in a project of manufacturing tires. The initial investment of the project is $180,000. Year Cash flows 1 $75,000 2. $50,000 3 $45,000 4 $25,000 5 $15,000 Determine the payback period of the project.

Discipline: Finance

Type of Paper: Question-Answer

Academic Level: Undergrad. (yrs 1-2)

Paper Format: APA

Pages: 1 Words: 27

Question

Company ABC Ltd is planning to make an investment in a project of manufacturing tires.

The initial investment of the project is $180,000. The cash flows generated from the project are as follows:


Year
Cash Flows
1
$ 75,000
2
$ 50,000
3
$ 45,000
4
$ 25,000
5
$ 15,000

Determine the payback period of the project.

Answer choices:

a. 3 years

b. 3.4 years

c. 0.4 years

d. 2.6 years


Expert Solution Preview




Cumulative
Year
Cashflow
Cashflow
0
- 180000
-180000
1
75000
-105000
2
50000
-55000
3