Suppose for the previous Problem 3.21, that your firm has decided to raise their required rate of
Question:
Suppose for the previous Problem 3.21, that your firm has decided to raise their required rate of return to 20%. How long will it take to pay back your initial investment now?
Problem 3.21
Discounted Payback. Your company is considering a high-risk project that could yield strong revenues but will involve a significant up-front investment. Because of this risk, top management is naturally concerned about how long it is likely to take to pay off that investment so that they can begin to realize profits. This project will require an investment of $200,000 and your five-year projection for inflows is: Year 1 – $50,000, Year 2 – $75,000, Year 3 –$125,000, Year 4 – $200,000, and Year 5 – $250,000. Your firm’s required rate of return is 18%. How long will it take to pay back your initial investment?
Step by Step Answer:
Project Management Achieving Competitive Advantage
ISBN: 9781292269146
5th Global Edition
Authors: Jeffrey K.Pinto