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What is the payback period for this investment? The Seattle Corporation has been presented with an investment opportunity that will yield cash flows of P30,000 per year in Years 1 through 4, P35,000 per year in Years 5 through 9, and P40,000 in Year 10. This investment will cost the firm P150,000 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? The Seattle Corporation has been presented with an investment opportunity that will yield cash flows of P30,000 per year in Years 1 through 4, P35,000 per year in Years 5 through 9, and P40,000 in Year 10. This investment will cost the firm P150,000 today, and the firm’s cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. 

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A. 5.23 years
B. 4.86 years
C. 4.00 years
D. 6.12 years
E. 4.35 years
Asked by Osiretz, Last updated: Apr 05, 2020

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2 Answers

e.Ronald

E.Ronald

Answered Jan 03, 2018

When you conform to what others believe or conform to the behavior of others, it is usually a result of group pressure whether it is real or imagined. It is a social influence that changes a belief or behavior. It can be stated as “yielding to pressures of a group.” Private acceptance can be that in your past you were told one way of thinking and now it’s just “natural” to think that way.

An example of it might be that you have heard many people state that broccoli is not liked as a vegetable. Your internal belief of this had been influenced over the years by what you have heard others say. Thus, public conformity is doing or saying what others around us say or do. Private acceptance, though, is coming to feel or think as others do.

 

John Smith

John Smith

Answered Mar 14, 2017

B. 4.86 years

Using the even cash flow distribution assumption, the project will completely recover the initial investment after P30/P35 = 0.86 of Year 5: Payback = 4 + = 4.86 years.
 

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