Question

Determine the payback period in years for a project that costs $45,000 and would yield after-tax cash flows of $9,000 the first year, $11,000 the second year, $14,000 the third year, $16,000 the fourth year, $20,000 the fifth year, and $26,000 the sixth year.

Answer 1

Year	Investment	Net annual cash flow	Cumulative net cash flow	Balance to be recovered
0	(45,000)		-	45,000.00
1		9,000	9,000	36,000.00
2		11,000	20,000	25,000.00
3		14,000	34,000	11,000.00
4		16,000	50,000	-
5		20,000	70,000	-
6		26,000.00	96,000	-
Capital is recovered fully in year	4
Pay back period is=	3 + 11000/16000	3.69

Answer is:

3.69 years