A project costs Rs. 500,000 and generates cash inflows of Rs. 150,000, Rs. 200,000 and Rs. 250,000 in its first three years. What is its simple payback period?
Correct answer: C. 2.60 years
- A. 2.20 years
- B. 2.50 years
- C. 2.60 years
- D. 3.00 years
Explanation
After two years, the project recovers Rs. 350,000, leaving Rs. 150,000 to recover. The remaining amount is earned during 150,000 divided by 250,000 of the third year, so the payback period is 2.6 years.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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