Question

Guerilla Radio Broadcasting has a project available with the following cash flows : Year Cash Flow 0 −$15,700 1 6,400 2 7,700 3 4,500 4 4,100 What is the payback period?

Answer 1

Year	0	1	2	3	4
Cashflow(in $)	(15,700)	6,400	7,700	4,500	4,100
Cumulative Cashflow(in $)	(15,700)	(9,300)	(1,600)	2,900	7,000

Payback Period = A+(B/C)

where

A - last period containing negative cumulative cash flow = 2

B - absolute value of cumulative cash flow in A = 1600

C - cash flow during the period after A = 4500

Payback Period = 2+(1600/4500)

= 2.36 years