The NB corporation is considering a project which has an up-front cost paid today at t=0

The NB corporation is considering a project which has an up-front cost paid today at t=0. The project will generate positive cash flows of $70,000, a year at the end of each of the next five years. The project's NPV is $90,000 and the company's WACC is 12%. What is the project simple, regular payback?

First, we can draw the time line for the above project as follows:

Year 0 1 2 3 4 5
(X) 70,000 70,000 70,000 70,000 70,000

Payback period is defined as the expected number of years required to recover the original investment. Payback period = Initial investment/cash flow per year. However, the initial investment is not given, but we can calculate it from the project's NPV, which is $90,000.

NPV is calculated by finding the present value of each cash flow, including both inflows and outflows, discounted at the project's cost of capital.

NPV = sum of CFt where CF is the cash flow
(1 + k)t k is the cost of capital
t is the period.

Then, we will replace $90,000 into NPV value.

Let X = an up-front cost paid for project

90,000 = - X + 70,000 + 70,000 + 70,000 + 70,000 + 70,000
(1.12)1 (1.12)2 (1.12)3 (1.12)4 (1.12)5

90,000 = - X + 252,336
X = 162,336

Now, we get the initial investment. We can find the payback period by replacing the value into the formula.

Payback period = Initial investment/cash flow per year
= 162,336/70,000
= 2.32 years