The Thunderstruck Corporation paid $130,000 for an asset. The asset is expected to generate end-of-year cash flows of $50,000, $50,000, $32,000, $28,000, and $25,000 in years one through
Five, respectively. Calculate the payback period for the project, assuming all the cash flows
From the project occur at the end of the year.
A)3 years
B)1 year
C)2 years
D)4 years

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the cumulative cash flows to equal the initial investment. After 3 years, the cumulative cash flow is $132,000 ($50,000 + $50,000 + $32,000), which exceeds the initial investment of $130,000.

The Thunderstruck Corporation Paid $130,000 for an Asset