McGlothin Inc. is considering a project that has the following cash flow data. What is the project's payback?
A) 1.86 years
B) 2.07 years
C) 2.30 years
D) 2.53 years
E) 2.78 years

Question

McGlothin Inc. is considering a project that has the following cash flow data. What is the project's payback? 
A) 1.86 years 
B) 2.07 years 
C) 2.30 years 
D) 2.53 years 
E) 2.78 years

Quizplus · Accepted Answer

To calculate the payback period, we need to determine in which year the initial investment is recovered.

Year 1: -$1,000,000 + $500,000 = -$500,000
Year 2: -$500,000 + $400,000 = -$100,000
Year 3: -$100,000 + $300,000 = $200,000

Therefore, the project's payback period is 2 years + ($100,000 ÷ $300,000) = 2.33 years, which is closest to choice C (2.30 years).