00:01
So here we have an investment and the cost is 55 ,000 and the return happens in three years.
00:10
So this presumably is year zero, right? you pay for it up front.
00:17
You get, oh sorry, it's year one, but then in year two, you get 35 ,000.
00:25
And in year three, you get 36 ,000.
00:30
And in year four, you get minus 5 ,000.
00:34
So in this case, the payback period is i would argue.
00:42
It is depending on how you count, right, let's say three years.
00:48
So i could argue for two.
00:50
It depends, right.
00:51
Are you investing here at the beginning of year one and you're getting the money back here, right? and so the payback is three years.
00:58
But if you're investing this money at the end of year one, it's two years, right? so possibly two.
01:06
So this is no problem, right? it is, it's, it works with her.
01:12
So based on payback period, yes, it works because she's clearly getting the money back in time, right? by this point, she's up 61 ,000.
01:23
So the money is paid off by the end of year three, no problems at all.
01:26
But that's, of course, not everything.
01:30
We might want to take a more careful look at this problem.
01:35
And we noticed that she has this required return rate of 8%.
01:41
Payback period doesn't account for the time value of money...