What is the traditional payback period

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Reference no: EM131519574

Tooth Tortures is considering building a new office after the first was destroyed by a storm. They estimate the initial cost of land, construction of the new office, and equipment to total $2,400,000. Their cost of capital is 10%. They have forecasted the following cash flows for the six years of operations until Dr. Payne, the dentist, plans to retire:

YEAR CASH FLOW(CF)

0 $-2,400,000

1 $ 400,000

2 500,000

3 600,000

4 600,000

5 600,000

6 400,000

A. What is the traditional payback period?

B. According to the information given, what is the NPV

C. Dr. Payne states that since, according to the payback period he should get all his investment back, that he should proceed with the new office. What would you tell him?

Reference no: EM131519574

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