Question

Match up the payback period with the cash flows.

CF0: -1800 CF1: 930 CF2: 130 CF3: 830 CF4: 420 CF0: -1900 CF1: 800 CF2: 350 CF3: 720 CF4: 120    CF0: -2000 CF1: 820 CF2: 170 CF3: 830 CF4: 320 CF0: -1750 CF1: 700 CF2: 350 CF3: 520 CF4: 450 CF0: -1550 CF1: 500 CF2: 170 CF3: 840 CF4: 320 A. About 3.56 years B. About 3.40 years C. About 3.13 years D. About 2.89 years E. About 3.25 years

Answer 1

						Cumulative cashflow
Year	Project-1	Project-2	Project-3	Project-4	Project-5	Project-1	Project-2	Project-3	Project-4	Project-5
0	(1,800)	(1,900)	(2,000)	(1,750)	(1,550)	(1,800)	(1,900)	(2,000)	(1,750)	(1,550)
1	930	800	820	700	500	(870)	(1,100)	(1,180)	(1,050)	(1,050)
2	130	350	170	350	170	(740)	(750)	(1,010)	(700)	(880)
3	830	720	830	520	840	90	(30)	(180)	(180)	(40)
4	420	120	320	450	320	510	90	140	270	280
Payback period=	Last year of nagtive cumulative cash flow + Negative cash flow/Cash flow in succeding year
Project-1	2+740/830	2.89
Project-2	3+30/120	3.25
Project-3	3+180/320	3.56
Project-4	3+180/450	3.40
Project-5	3+40/320	3.13