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    The Seattle Corporation is considering an investment that will generate $30,000 in annual cash flows for the first 4 years, $35,000 annually for years 5-9, and $40,000 in year 10, at a cost of $150,000. With a 10% cost of capital, the document calculates the payback period for this investment to be 4.86 years by determining how long it takes the initial cash inflows to repay the upfront $150,000 investment amount.

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    The Seattle Corporation is considering an investment that will generate $30,000 in annual cash flows for the first 4 years, $35,000 annually for years 5-9, and $40,000 in year 10, at a cost of $150,000. With a 10% cost of capital, the document calculates the payback period for this investment to be 4.86 years by determining how long it takes the initial cash inflows to repay the upfront $150,000 investment amount.

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    5 views1 page

    A3 Finance

    Uploaded by

    Aqib Ali
    The Seattle Corporation is considering an investment that will generate $30,000 in annual cash flows for the first 4 years, $35,000 annually for years 5-9, and $40,000 in year 10, at a cost of $150,000. With a 10% cost of capital, the document calculates the payback period for this investment to be 4.86 years by determining how long it takes the initial cash inflows to repay the upfront $150,000 investment amount.

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    A3 September 28, 2020 Lecture 23

    Name __Aqib Ali___ RollNumber____18236048__________

    The Seattle Corporation has been presented with an investment opportunity which will yield cash
    flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and
    $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of
    capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is
    the payback period for this investment?
    Solution
    interest rate is 10%.
    investment is $150,000.
    The inflows for 4 years is
    = 30,000 × 4
    = $120,000
    The inflows for the 5th year
    = $35,000
    The amount of $120,000 will be paid off in 4 years
    Payback period
    = 4 years + 150,000-120,000/35,000
    = 4 years + 30,000/35,000
    = 4 years + 0.8571 years
    = 4.86 years

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