Use the table for the question(s)below.
Consider the following two projects with cash flows in $:
-The payback period for project Alpha is closest to:
A)3.2 years.
B)2.9 years.
C)3.1 years.
D)2.6 years.

Question

Use the table for the question(s)below.
Consider the following two projects with cash flows in $: 
-The payback period for project Alpha is closest to:
A)3.2 years. 
B)2.9 years. 
C)3.1 years. 
D)2.6 years.

Quizplus · Accepted Answer

The payback period for project Alpha can be calculated by adding up the cash flows until the initial investment of $100,000 is recovered. This occurs in year 4 when the cumulative cash flow becomes $101,000. Therefore, the payback period for project Alpha is 3 + ($1,000/$12,000) = 3.08 years, which is closest to 3.1 years (choice C).

Use the Table for the Question(s)below