Question:
In a certain project, 15% of the total investment is the working capital. The minimum acceptable rate of return is 4.95% and the period of evaluation is 15 years. Which one of the following is the maximum acceptable project payback period (in years)?
In a certain project, 15% of the total investment is the working capital. The minimum acceptable rate of return is 4.95% and the period of evaluation is 15 years. Which one of the following is the maximum acceptable project payback period (in years)?
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Set NPV = 0 over the 15-year life, with fixed capital recovered by an annuity over $P_b$ years and working capital recovered as a lump sum at year 15, then solve for $P_b$.
Updated On: Aug 10, 2026
- 5
- 8
- 12
- 15
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The Correct Option is B
Solution and Explanation
Step 1: Set up the investment split. TCI=100, WC=15, FCI=85, i=0.0495, n=15.
Step 2: Discount and annuity factors. (1.0495)^15≈2.0641, PVIFA=10.415.
Step 3: NPV=0 breakeven condition.
\[ 100 = A(10.415) + 15(0.4845) \]
Step 4: Solve for A.
\[ A = 92.733/10.415 = 8.904 \]
Step 5: Convert to payback period.
\[ P_{b,max} = 85/8.904 \approx 9.55\ \text{years} \]
Step 6: Choose the largest listed value not exceeding 9.55 years.
\[ \boxed{P_{b,max} = 8\ \text{years}} \]Was this answer helpful?
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