# The payback of a project is the number of years it takes before the projects total cash flow is…

The payback of a project is the number of years it takes

before the projects total cash flow is positive. Payback ignores the time

value of money. Its interesting, however, to see how differing assumptions on

project growth impact payback. Suppose, for example, that a project requires a

$300 million investment at year 0 (right now). The project yields cash flows

for 10 years, and the year 1 cash flow will be between $30 million and $100

million. The annual cash flow growth will be between 5% and 25% per year.

(Assume that this growth is the same each year.) Use a data table to see how

the

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The payback of a project is the number of years it takes

before the projects total cash flow is positive. Payback ignores the time

value of money. Its interesting, however, to see how differing assumptions on

project growth impact payback. Suppose, for example, that a project requires a

$300 million investment at year 0 (right now). The project yields cash flows

for 10 years, and the year 1 cash flow will be between $30 million and $100

million. The annual cash flow growth will be between 5% and 25% per year.

(Assume that this growth is the same each year.) Use a data table to see how

the project payback depends on the year 1 cash flow and the cash flow growth

rate.

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