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    Question

    From a machine that cost Rs.50,000 and has residual value of zero the following costs and revenues are expected to be derived over its life of 4 years:

    Revenue per annum Rs.

    Cost per annum Rs.

    Years 1-3

    30,000

    10,000

    Year 4

    25,000

    20,000

    The cost of capital is 10%. In which year does the project payback?

    A 1 year Correct Answer Incorrect Answer
    B 2 years Correct Answer Incorrect Answer
    C 2.5 years Correct Answer Incorrect Answer
    D 3 years Correct Answer Incorrect Answer
    E 4 years Correct Answer Incorrect Answer

    Solution

    5 years. Because the net cash inflow from year 1 to 3 is (30000-10000) = 20000 and considering an investment of 50000, it would be recovered within 2.5 years

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