CS Professional · Strategic Management and Corporate Finance · Project Evaluation
A project costs Rs 12,00,000 and is expected to generate uniform annual cash inflows of Rs 3,00,000 for 6 years. What is its payback period?
The payback period is 4 years. With equal annual inflows, payback is the initial investment divided by yearly cash inflow, so Rs 12,00,000 divided by Rs 3,00,000 gives 4 years, after which the outlay is fully recovered.
- A3 years
- B4 yearsCorrect
- C5 years
- D2 years
Explanation
Payback for uniform inflows = initial outlay / annual cash inflow = 12,00,000 / 3,00,000 = 4 years. Check: 4 x 3,00,000 = 12,00,000. Choosing 2 years would result from dividing by 6,00,000, which is not given in the data.
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