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A capital investment project requires expenditure of $90,000 in Year 0, followed by cash inflows of $30,000 at the end of each of the four years of the project’s life. The project will have a terminal value of $60,000.
The payback period of the investment project is _____ years (round to the nearest year)
Ans = 3 years.
What is meant by terminal value and what had been its impact?I thinkmthat here it means you could sell the eg pland and equipment initially bought for 90,000 for 60,000.
It has no impact here as payback is already achieved after 3 years.
It is bad phrasing because ‘terminal value’ has a specific meaning which doesn’t work here. It would have been better to say that the equipment had a resale value of 60,000 at the end of the project.
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