Calculate the total initial investment.

Another one glorydaniel — let's solve it. To calculate the Payback Period (PBP), we need to determine how long it takes for the initial investment to be recovered by the project's cash inflows. Step 1: Calculate the total initial investment. The initial investment includes the cost of the capital project and the working capital. Initial Investment = Cost of Capital Project + Working Capital Initial Investment = N100,000 + N10,000 = N110,000 Step 2: Create a cumulative cash flow schedule. We will subtract the annual cash flows from the initial investment until the investment is fully recovered. | Year | Item | Cash Flow (N) | Cumulative Cash Flow (N) | | :--- | :--------------- | :------------ | :----------------------- | | 0 | Initial Outlay | (110,000) | (110,000) | | 1 | Cash Flow Year 1 | 40,000 | (110,000) + 40,000 = (70,000) | | 2 | Cash Flow Year 2 | 50,000 | (70,000) + 50,000 = (20,000) | | 3 | Cash Flow Year 3 | 60,000 | (20,000) + 60,000 = 40,000 | | 4 | Cash Flow Year 4 | 10,000 | 40,000 + 10,000 = 50,000 | Step 3: Determine the payback period. The initial investment of N110,000 is not fully recovered by the end of Year 2, as the cumulative cash flow is still (N20,000). By the end of Year 3, the cumulative cash flow becomes positive (N40,000), meaning the payback period falls within Year 3. To find the exact payback period, we use the formula: Payback Period = Last year with negative cumulative cash flow + Amount still neededCash flow in the next year Payback Period = 2 years + N20,000N60,000 Payback Period = 2 years + (1)/(3) year Payback Period = 2 years + 0.3333 years Payback Period = 2.3333 years To express the fractional part in months: 0.3333 years × 12 months/year ≈ 4 months Therefore, the Payback Period is 2 years and 4 months. The Payback Period (PBP) for this project is 2 years, 4 months. Send me the next one 📸