The payback period is:

Question

Quizplus · Accepted Answer

The payback period is the amount of time it takes to recoup the initial investment through the net cash inflows. In this case, the initial investment is $5,000 and the net cash inflows for the first three years are $2,000, $2,500, and $2,500 respectively. Therefore, the total cash inflow after two years is $2,000 + $2,500 = $4,500. To recoup the initial investment of $5,000, another $500 is needed. Since the net cash inflow for the third year is $2,500, the payback period is $500/$2,500 = 0.2 years or 2.5 years. So, the best choice is A) 2.50 years.

The Payback Period Is