Question

A project has an initial cost of $8,500 and produces cash inflows of $2,600, $4,900, and $1,500 over the next three years, respectively.

The project’s payback period is closest to:

A) 2.20 Years

B) 2.33 Years

C) 2.67 Years

D) 2.75 Years

Answer 1

Year	Cash flows	Cumulative Cash flows
0	(8500)	(8500)
1	2600	(5900)
2	4900	(1000)
3	1500	500

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=2+(1000/1500)

=2.67 years(Approx).