Question

What is the payback period for the following set of cash flows? (Round your answer to 2 decimal places, e.g., 32.16.) Year Cash Flow 0 –$ 5,500 1 1,525 2 1,725 3 2,125 4 1,625

Answer 1

Answer:

3.08 years

Explanation:

The computation of the payback period is shown below:

Year       Cash flows    Cumulative cash flows

0         -$5,500                -$5,500

1          $1,525                 -$3,975

2               $1,725                -$2,250

3               $2,125                   -$125

4               $1,625                   $1,500

Now the pay back period is

= 3 years + $125 ÷ $1,625

= 3.08 years