Consider an Investment with an Initial Cost of £20,000 and Is

question 16

Multiple Choice

Consider an investment with an initial cost of £20,000 and is expected to last for 5 years.The expected cash flow in years 1 and 2 are £5,000, in years 3 and 4 are £5,500 and in year 5 is £1,000.
The total cash inflow is expected to be £22,000 or an average of £4,400 per year.Compute the
Payback period in years.

• A)3.18 years.
• B)3.82 years.
• C)4.00 years.
• D)4.55 years.
• E)None of the above.

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Definitions:

Rate of Inflation

The percentage rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Purchasing Power

An individual's or entity's ability to buy goods and services, affected by inflation and personal financial situation.

Hourly Rate

The sum of money received or given out for every hour worked.

Toxic Waste Discharge

The release of harmful pollutants into the environment, usually from industrial operations.