Question

What is the payback period on Popeye's purchase of a new pleasure boat for his tourist business? The expected cash flows appear below. (note: payback is in years; round to 2 decimals)

Year 0 cash flow = -9,400,000

Year 1 cash flow = 4,300,000

Year 2 cash flow = 2,400,000

Year 3 cash flow = 3,200,000

Year 4 cash flow = 2,700,000

Year 5 cash flow = 4,400,000

Year 6 cash flow = 3,800,000

Answer 1

Payback Period is the time period in which initial investment comes as cash inflow,

Payback Period = 1(4,300,000) + 1(2,400,000) + 0.84(2,700,000/3,200,000)

Payback Period = 2.84 years