Cardinal Company is considering a project that would require a $2,985,000 invest
ID: 2527452 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,985,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:
What is the project’s payback period? (Round your answer to 2 decimal places.)
Project’s payback period
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years
Cardinal Company is considering a project that would require a $2,985,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:
Explanation / Answer
Annual cash flow = 609000+517000 = 1126000
Payback period = Initial investment/Annual cash flow
= 2985000/1126000
Payback period = 2.65 years