Multiple choice

Calculate the payback period, if a project requires Rs. 1,00,000 as initial investment and it generates a cash inflow of Rs. 25,000 for ten years.

  1. 4 years

  2. 6 years

  3. 5 years

  4. None of these
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A Correct answer
Explanation

It is 4 years. Pay back period =  Initial Investment / Annual Cash Inflow Initial investment required in project is of Rs. 1,00,000. Annual cash inflow is of Rs. 25,000 Hence, Pay back period = Rs. 1,00,000 / 25,000 = 4 years

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