To determine the payback period of the project, we need to calculate the time it takes for the cumulative cash inflows to equal or exceed the initial outlay.
Year 1: ₹ 30,000
Year 2: ₹ 20,000
Year 3: ₹ 18,000
Year 4: ₹ 18,000
Year 5: ₹ 15,000
Cumulative cash inflows:
Year 1: ₹ 30,000
Year 2: ₹ 50,000 (₹ 30,000 + ₹ 20,000)
Year 3: ₹ 68,000 (₹ 50,000 + ₹ 18,000)
Year 4: ₹ 86,000 (₹ 68,000 + ₹ 18,000)
Year 5: ₹ 101,000 (₹ 86,000 + ₹ 15,000)
The cumulative cash inflows exceed the initial outlay of ₹ 70,000 in year 3. Therefore, the payback period of the project is 3 years.
) You are planning to start a project. If the required initial outlay of the project is ₹ 70,000 and estimated annual cash inflows are ₹ 30,000, ₹ 20,000, ₹ 18,000, ₹ 18,000, and ₹ 15,000 for the next 5 years respectively. Estimate the payback period of the project.
1 answer