McGlothin Inc.is considering a project that has the following cash flow data.What is the project's payback? $\begin{array}{lcccc}
\text { Year } & 0 & 1 & 2 & 3 \
\text { Cash flows } & -\$ 1.150 & \$ 500 & \$ 500 & \$ 500
\end{array}$
A) 1.86 years
B) 2.07 years
C) 2.30 years
D) 2.53 years
E) 2.78 years

Question

Quizplus · Accepted Answer

$$\begin{array} { l c c c c } 
\text { Year } & 0 & 1 & 2 & 3 \
\hline \text { Cash flowr } & - \$ 1.150 & \$ 500 & \$ 500 & \$ 500 \
\text { Cumulative CF } & - \$ 1.150 & - \$ 650 & - \$ 150 & \$ 350\
\text { Payback }=2.30 \text { years }& -  &- & -& 2.30\
\end{array}$$ Payback = last year before cum CF turns positive + abs.val.last neg.cum CF/CF in payback year.

McGlothin Inc Year 0123 Cash flows −$1.150$500$500$500\begin{array}{lcccc}\text { Year } & 0 & 1 & 2 & 3 \\\text { Cash flows } & -\$ 1.150 & \$ 500 & \$ 500 & \$ 500\end{array} Year Cash flows ​0−$1.150​1$500​2$500​3$500​

McGlothin Inc $\begin{array}{lcccc}\text { Year } & 0 & 1 & 2 & 3 \\\text { Cash flows } & -\$ 1.150 & \$ 500 & \$ 500 & \$ 500\end{array}$