Consider an investment with an initial cost of $20,000 and is expected to last for 5 years.The expected cash flow in years 1 and 2 are $5,000,in years 3 and 4 are $5,500 and in year 5 is $1,000.The total cash inflow is expected to be $22,000 or an average of $4,400 per year.Compute the payback period in years.
A)3.18 years
B)3.82 years
C)4.00 years
D)4.55 years
E)None of the above.

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the investment to be recovered. By the end of year 3, the cumulative cash flow is $15,500. In year 4, an additional $5,500 is needed to reach $20,000. Thus, the payback period is 3 years plus $4,500/$5,500 of year 4, which is approximately 3.82 years.

Consider an Investment with an Initial Cost of $20,000 and Is