What is the payback period for the following set of cash flows?
Year Cash Flow
0 −$ 4,100
1 1,900
2 2,600
3 1,500
4 1,100
Multiple Choice :
1.80 years
1.94 years
1.85 years
2.15 years
1.87 years
| Year | Cash flows | Cumulative Cash flows |
| 0 | (4100) | (4100) |
| 1 | 1900 | (2200) |
| 2 | 2600 | 400 |
| 3 | 1500 | 1900 |
| 4 | 1100 | 3000 |
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=1+(2200/2600)
=1.85 years(Approx).
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