A project has the following cash flows.What is the payback period? $$\begin{array} { | c | r | }
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 28,000 \
\hline 1 & 11,600 \
\hline 2 & 11,600 \
\hline 3 & 6,600 \
\hline 4 & 6,600 \
\hline
\end{array}$$
A)2.38 years
B)2.49 years
C)2.74 years
D)3.01 years
E)3.33 years

Question

A project has the following cash flows.What is the payback period? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 28,000 \
\hline 1 & 11,600 \
\hline 2 & 11,600 \
\hline 3 & 6,600 \
\hline 4 & 6,600 \
\hline
\end{array}$$
A)2.38 years
B)2.49 years
C)2.74 years
D)3.01 years
E)3.33 years

Quizplus · Accepted Answer

The payback period is the time it takes for the cumulative cash flows to equal the initial investment. After 2 years, the cumulative cash flow is $23,200. In year 3, an additional $4,800 is needed to reach $28,000. Since $6,600 is received in year 3, the payback period is 2 + ($4,800/$6,600) = 2.74 years.

A Project Has the Following Cash Flows A)238 Years B)2

A Project Has the Following Cash Flows A)238 Years
B)2