Consider the following cash flows: Year Cash Flow 0 –$6,800 1 1,950 2 4,100 3 1,750...

Question

Question

Consider the following cash flows: Year Cash Flow 0 –$6,800 1 1,950 2 4,100 3 1,750 4 1,450

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

Answer 1

Answer #1

Year	Cash Flows	Cummulative Cash Flow Working	Cummulative Cash Flows
0	(6,800)	(6,800)	(6,800)
1	1,950	-6800+1950	(4,850)
2	4,100	-4850+4100	(750)
3	1,750	-750 + 1750	1,000
4	1,450	1000+1450	2,450

.

Pay Back Period for the above set of cash flows = 2 + (750/1,750)

= 2 + 0.4286

= 2.4286 years

= 2.43 years.

.

Note:

$6,050 is recovered in first 2 years

Balance $750 (6,800-6,050) is recovered in 0.43 years (750/1,750)

So , payback period is 2.43 years.

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Answer 2

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