You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, respectively?
Multiple Choice
0.90 year
1.11 years
1.82 years
1.90 years
0.82 years
Year | Cash flows | Cumulative Cash flows |
0 | (27,900) | (27,900) |
1 | 14,650 | (13250) |
2 | 16190 | 2940 |
3 | 12480 | 15420 |
4 | 9500 | 24920 |
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=1+(13250/16190)
=1.82 years(Approx).
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