Poder Inc.is considering a project that has the following cash flow data.What is the project's payback? $$\begin{array} { l c c c c }
\text { Year } & 0 & 1 & 2 & 3 \
\hline \text { Cash flows } & - \$ 750 & \$ 300 & \$ 325 & \$ 350
\end{array}$$
A) 1.91 years
B) 2.12 years
C) 2.36 years
D) 2.59 years
E) 2.85 years

Question

Poder Inc.is considering a project that has the following cash flow data.What is the project's payback? $$\begin{array} { l c c c c } 
\text { Year } & 0 & 1 & 2 & 3 \
\hline  \text { Cash flows } & - \$ 750 & \$ 300 & \$ 325 & \$ 350
\end{array}$$
A) 1.91 years
B) 2.12 years
C) 2.36 years
D) 2.59 years
E) 2.85 years

Quizplus · Accepted Answer

The project's payback period is calculated by determining how long it takes to recover the initial investment of $750. After year 1, $300 is recovered. After year 2, an additional $325 is recovered, totaling $625. In year 3, $125 more is needed to reach $750. Since $350 is received in year 3, it takes $125/$350 = 0.36 of a year. Therefore, the payback period is 2 + 0.36 = 2.36 years.

Poder IncIs Considering a Project That Has the Following Cash Flow