Calculate the Payback of a 20-Year Project with a Cost

question 247

Multiple Choice

Calculate the payback of a 20-year project with a cost of $400,000 and annual cash flows of $50,000 in years 1-10 and $25,000 in years 11-20. The company's required rate of return is 10%.

• A) 4
• B) 5
• C) 6
• D) 7
• E) 8

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Definitions:

Volcker Disinflation

A period during the early 1980s when the Federal Reserve, led by Chairman Paul Volcker, raised interest rates to historically high levels in order to combat high inflation.

Estimates

Approximations or educated guesses based on current trends and data.

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period of time, affecting the purchasing power of a currency.

Short-Run Phillips Curve

A graphical representation showing the short-term trade-off between inflation and unemployment rates.