Question

ooking for H x appointments HW: Chapter 8 newconnect.mheducation.com/flow/connect.html hapter 8 A Consider the following cash flows: Year Cash Flow -$7,600 2,150 4.900 1,950 1.650 What is the payback period for the cash flows? (Do not round in and round your answer to 2 decimal places, e.g., 32.16.) Book Payback period years rences

step by step would be super helpful for future reference!

Answer 1

To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the project has created:

$2,150 + $4,900 = $7,050

in cash flows. The project still needs to create another:

$7,600 - $7,050 = $550

in cash flows. During the third year, the cash flows from the project will be $1,950. So, the payback period will be two years, plus what we still need to make divided by what we will make during the third year. The payback period is:

Payback = 2 + ($550 / $1,950) = 2.28 years