In: Finance
A project with an initial cost of $24,800 is expected to generate cash flows of $5,900, $8,000, $8,750, $7,650, and $6,700 over each of the next five years, respectively. What is the project's payback period? Multiple Choice 3.28 years 3.39 years 3.49 years 3.75 years 3.65 years
3.28 years
Payback period is the time within which cost of project is recovered back. | |||||||
Year | Cash flow | Cumulative Cash flow | |||||
0 | $ -24,800 | $ -24,800 | |||||
1 | 5,900 | -18,900 | |||||
2 | 8,000 | -10,900 | |||||
3 | 8,750 | -2,150 | |||||
4 | 7,650 | 5,500 | |||||
5 | 6,700 | 12,200 | |||||
Payback period | = | 3+(2150/7650) | |||||
= | 3.28 Years | ||||||