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EKG, Inc. is considering a new project that will require an initial cash investment of $419,000. The project will produce no cash flows for the first two years. The projected cash flows for Years 3 through 7 are $69,000, $98,000, $109,000, $145,000, and $165,000, respectively. How long will it take the firm to recover its initial investment in this project?
a. 3.81 years
b. 3.98 years
c. 5.57 years
d. The project never pays back.
e. 5.99 years

Respuesta :

facundobuzzetti

Answer:

It will take 5.99 years to cover the initial investment.

Explanation:

Giving the following information:

Initial investment: $419,000

The payback period is the time required to cover the initial investment:

Year 1= 0 - 419,000 = -450,000

Year 2= 0 - 419,000= -450,000

Year 3= 69,000 - 419,000= -350,000

Year 4= 98,000 - 350,000= -252,000

Year 5= 109,000 - 252,000= -143,000

Year 6= 145,000 - 143,000= 2,000

To be more accurate:

(143,000/145,000)= 0.986

It will take 5.99 years to cover the initial investment.

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