What Is the Payback Period for a $20,000 Project That

question 87

Multiple Choice

What is the payback period for a $20,000 project that is expected to return $6,000 for the first two years and $3,000 for Years 3 through 5?

• A) 3 1/2
• B) 4 1/2
• C) 4 2/3
• D) 5

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Definitions:

Useful Life

The estimated period over which a fixed asset is expected to be useful for the purpose it was acquired by a company.

Net Present Values

A method used in capital budgeting to evaluate the profitability of an investment, calculated by subtracting the initial investment from the present value of future cash flows.

Present Value

The contemporary value of future financial inflows or a lump sum, adjusted for a particular rate of return.

Compound Interest

Interest calculated on the initial principal of a deposit or loan, as well as on the accumulated interest of previous periods.