Question

What is the payback period for the following set of cash flows? (Enter 0 if the...

What is the payback period for the following set of cash flows? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

Year Cash Flow
0 -5087
1 1594
2 1590
3 1568
4 1891
0 0
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Answer #1
Year Cash flows Cumulative Cash flows
0 (5087) (5087)
1 1594 (3493)
2 1590 (1903)
3 1568 (335)
4 1891 1556

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+(335/1891)

=3.18 years(Approx).

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