You are considering a project with an initial cost of $6,400. What is the payback period for this project if the cash inflows are $900, $1,350, $2,800, and $1,500 a year over the next four years, respectively?
A) 3.21 years
B) 3.48 years
C) 3.90 years
D) 4.21 years
E) 4.90 years

Question

Quizplus · Accepted Answer

The cumulative cash inflows after 3 years are $5,050 ($900 + $1,350 + $2,800). In the fourth year, an additional $1,350 is needed to reach the initial cost of $6,400. The payback period is 3 years plus $1,350/$1,500 of the fourth year, which is 3.90 years.

You Are Considering a Project with an Initial Cost of $6,400