Q
A project cost Rs.6,00,000. It yields annually a profit of
Rs.80,000. After depreciation of 12.5% p.a.but before tax of
50%.Calculate payback priod.
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Answer / Pawan Kumar Kaushal
To calculate the payback period, first determine the annual net cash inflow (annual profit after depreciation and taxes):n Annual Net Cash Inflow = Annual Profit - Depreciation - Taxesn Let P be the annual net cash inflow.n P = Rs. 80,000 - (12.5% of Rs.6,00,000) - (50% of P)n Solve for P:n 0.4P = Rs. 80,000 - (Rs.75,000 + 0.5P)n P = Rs. 66,666.67n Now, calculate the payback period by dividing the initial investment by the annual net cash inflow:n Payback Period = Initial Investment / Annual Net Cash Inflown Payback Period = Rs. 90,000 / Rs. 66,666.67 = 1.35 years
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