# Award 076 out of 076 points show my answer what is

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7. Award: 0.76 out of 0.76 points Show my answer What is the payback period for the following set of cash flows? (Round your answer to 2 decimal places, e.g., 32.16.) Year Cash Flow 0 –\$5,400 1 1,475 2 1,675 3 2,075 90.00 ± 1% 45.00 ± 1% 30.00 ± 1%
4 1,575 Payback period years
Explanation: To calculate the payback period, we need to find the time that the project has recovered its initial investment. After three years, the project has created: \$1,475 + 1,675 + 2,075 = \$5,225 in cash flows. The project still needs to create another: \$5,400 – 5,225 = \$175 in cash flows. During the fourth year, the cash flows from the project will be \$1,575. So, the payback period will be three years, plus what we still need to make divided by what we will make during the fourth year. The payback period is: Payback = 3 + (\$175 / \$1,575) = 3.11 years 8. Award: 0.76 out of 0.76 points Show my answer An investment project provides cash inflows of \$645 per year for eight years. What is the project payback period if the initial cost is \$1,550? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Payback period years What is the project payback period if the initial cost is \$3,300? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) 2.40 ± 1%
Payback period years Explanation: To calculate the payback period, we need to find the time that the project has recovered its initial investment. The cash flows in this problem are an annuity, so the calculation is simpler. If the initial cost is \$1,550, the payback period is: Payback = 2 + (\$260 / \$645) = 2.40 years There is a shortcut to calculate the payback period when the future cash flows are an annuity. Just divide the initial cost by the annual cash flow. For the \$3,300 cost, the payback period is: Payback = \$3,300 / \$645 = 5.12 years The payback period for an initial cost of \$5,400 is a little trickier. Notice that the total cash inflows after eight years will be: Total cash inflows = 8(\$645) = \$5,160 If the initial cost is \$5,400, the project never pays back. Notice that if you use the shortcut for annuity cash flows, you get: Payback = \$5,400 / \$645 = 8.37 years = 0 years This answer does not make sense since the cash flows stop after eight years, so again, we must conclude the payback period is never. 9. Award: 0.76 out of 0.76 points Show my answer An investment project has annual cash inflows of \$5,100, \$3,200, \$4,400, and \$3,600, for the next four years, respectively. The discount rate is 15 percent. What is the discounted payback period for these cash flows if the initial cost is \$5,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years