Question

Tapley Dental Associates is considering a project that has the following cash flow data. What is the project's payback? Year Cash flows: $1,000 $400 $400 $250 $400 $500 ○ A. 3.00 0 1 2 3 45 B. 2.33 OC. 2.80 O D. 2.00 E. 2.50

Answer 1

Project’s Payback Period

Year	Cash Flows ($)	Cumulative net Cash Inflow ($)
0	-1,000	-1,000
1	400	-600
2	400	-200
3	250	50
4	400	450
5	500	950

Project’s Payback Period = Years before full recover + (Unrecovered cash inflow at start of the year/cash flow during the year)

= 2 Year + ($200 / $250)

= 2 Years + 0.80 Years

= 2.80 Years

“Hence, The Project’s Payback Period = (C). 2.80 Years”