Question

What is the payback period for the following set of cash flows? Year Cash Flow 0...

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

0 0
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Answer #1
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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