Compute the Payback Period for a Project with the Following

question 69

Multiple Choice

Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%. Initial outlay = $450
Cash flows: Year 1 = $325
Year 2 = $65
Year 3 = $100

• A) 3.43 years
• B) 3.17 years
• C) 2.88 years
• D) 2.6 years

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Definitions:

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.

Economic Profits

Profits earned by a business after accounting for both explicit costs (like wages and rents) and implicit costs (such as opportunity costs).

Creative Destruction

A concept in economics attributed to Joseph Schumpeter, describing the process by which old industries or technologies are destroyed and replaced by new ones.

Dominant Firms

Companies that have a major share of the market sales, influence, or both, enabling them to set prices within the industry.