Question

An investment of $1,000 produces a net cash inflow of $500 in the first year and $750 in the second year. What is the payback period? a.1.67 years b.0.50 year c.2.00 years d.1.20 years e.Cannot be determined.

Answer 1

Answer:

a. 1.67 years

Explanation:

The computation of the payback period is shown below:

In year 0 = $1,000

In year 1 = $500

In year 2 = $750

If we take the only year 1 cash inflow i.e $500

Now we deduct the $500 from the $1,000, so the amount would be $500

And, the next year cash inflow is $750

So, the payback period equal to

= 1 years + $500 ÷ $750

= 1.67 years