Mansi Inc. is considering a project that has the following cash flow data. What is the project's payback?
A) 1.91 years
B) 2.12 years
C) 2.36 years
D) 2.59 years
E) 2.85 years

Question

Quizplus · Accepted Answer

To calculate the payback period, we add up the cash inflow amounts until we reach the initial investment.

Year 1: $300,000
Year 2: $200,000
Year 3: $400,000
Year 4: $100,000

Cumulative cash inflows:
Year 1: $300,000
Year 2: $500,000
Year 3: $900,000
Year 4: $1,000,000 (break even)

Therefore, the payback period is 2 years + ( $100,000 ÷ $400,000 ) = 2.25 years.

The closest option is C which is 2.36 years.

Mansi Inc Is Considering a Project That Has the Following Cash