In: Finance
There is a project with the following cash flows :
Year | Cash Flow | |
0 | −$23,700 | |
1 | 7,000 | |
2 | 7,700 | |
3 | 7,100 | |
4 | 5,100 | |
What is the payback period?
Multiple Choice
2.73 years
4.00 years
3.81 years
3.63 years
3.37 years
Year | 0 | 1 | 2 | 3 | 4 |
Cashflow(in $) | (23,700) | 7,000 | 7,700 | 7,100 | 5100 |
Cumulative Cashflow(in $) | (23,700) | (16,700) | (9,000) | (1,900) | 3,200 |
Payback Period = A+(B/C)
where
A - last period containing negative cumulative cash flow = 3
B - absolute value of cumulative cash flow in A = 1900
C - cash flow during the period after A = 5100
Payback Period = 3+(1900/5100)
= 3.37 years