Question

You have the following information on a project's cash flows. Year Cash flows 0 -$111,000 1 24,000 2 31,000 3 36,000 4 50,000 5 55,000 The project's payback is ____ years. Round it to two decimal places.

Answer 1

Year	Cash flows	Cumulative Cash flows
0	(111,000)	(111,000)
1	24,000	(87000)
2	31,000	(56,000)
3	36,000	(20,000)
4	50,000	30,000
5	55,000	85,000

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=3+(20,000/50,000)

=3.4 years.