Bluefield Inc.is considering a project that will require an initial investment of $20 000 and is expected to generate future cash flows of $5000 for years 1 through 3 and $2500 for years 4 through 6.The project's payback period is:

Question

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The payback period is the time it takes for the initial investment to be recovered from the cash flows. By the end of year 4, the cumulative cash flow is $20,000, which matches the initial investment, so the payback period is 4 years.