There is a project with the following cash flows : Year Cash Flow 0 −$23,700 1...

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

Expert Solution

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

jeff jeffy answered 10 months ago

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