An investment of Rs. 100 lakhs is to be made for construction of a plant, which will take two years to start production. The annual profit from the operation of the plant is Rs. 20 lakhs. What will be the payback time ?

Question

Accepted Answer

7 years. Payback time = Initial Investment / Annual Profit. So, 100 lakhs / 20 lakhs per year = 5 years. However, since the plant takes 2 years to start, the total payback is 2 years + (100/20) = 7 years.