A project requires a cost of $39,400 today and yields cash flows for 3 years as...
A project requires a cost of $39,400 today and yields cash flows for 3 years as follows. When will the project pay back? Year 1 2 3 Cash flow $12,800 $21,800 $10,000 A) between 1 to 2 B) between 2 to 3 C) This investment never pays back
Homework Answers
| Year | Cash flows | Cumulative Cash flows |
| 0 | (39400) | (39400) |
| 1 | 12800 | (26600) |
| 2 | 21800 | (4800) |
| 3 | 10000 | 5200 |
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+(4800/10,000)
=2.48 years
Hence the correct option is:
B) between 2 to 3
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