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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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