4. You are considering a project with an initial cost of $7,800. What is the payback...
4. You are considering a project with an initial cost of $7,800. What is the payback period for this project if the cash inflows are $1,100, $1,640, $3,800, and $4,500 a year over the next four years, respectively?
Homework Answers
| Year | Cash flows | Cumulative Cash flows |
| 0 | (7800) | (7800) |
| 1 | 1100 | (6700) |
| 2 | 1640 | (5060) |
| 3 | 3800 | (1260) |
| 4 | 4500 | 3240 |
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=3+(1260/4500)
=3.28 years.
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