Assuming M & N wishes to invest the sum of $250,000 into a project
that promises annual cash inflow of $31,250, determine how long it takes the
project to payback.
Suggested Solution
In the question, we are told that the cash inflow remains $31,250 for
the rest of the project. Thus, the formula for calculating payback period where
the cash inflow is constant is given as
PBP = Investment/Annual cash inflow.
Hence, our payback period for M & N will be
PBP = $250,000/$31,250
PBP = 8 years.
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