Question

What is the payback period for the following set of cash flows?

   

Year	Cash Flow
0	−$ 3,700
1	2,300
2	2,200
3	1,100
4	2,000

1.64 years

1.59 years

1.72 years

1.94 years

1.66 years

Answer 1

Ans: - Let us first calculate net cash flow as below: -

Year	Cash Flow	Net Cash Flow
0	-3700	-3700
1	2300	-1400
2	2200	800
3	1100	1900
4	2000	3900

Hence Payback period = 1+ 1400/2200 = 1+ .636 = 1.64 Years

Basically period in which cash flow becomes positive