Question

Find the Payback period for the following project: Project X Initial Outlay $8,550 Year 1 $3,180 Year 2 $3,590 Year 3 $3,500

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Answer #1
Year Cash flows Cumulative Cash flows
0 (8550) (8550)
1 3180 (5370)
2 3590 (1780)
3 3500 1720
4 5270 6990

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

=2+(1780/3500)

=2.51 years(Approx).

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