Wells Inc.is considering a project that has the following cash flow data.What is the project's payback? $\begin{array}{l}
\begin{array}{l}
\text { Year: } \
\text { Cash flows: }
\end{array}
\begin{array}{cccc}
0 & 1 & 2 & 3 \
\hline-\$ 1,000 & \$ 500 & \$ 500 & \$ 500
\end{array}
\end{array}$
A)1.62 years
B)1.80 years
C)2.00 years
D)2.20 years

Question

Quizplus · Accepted Answer

The project's payback period is calculated by adding the cash flows year by year until the initial investment is recovered. In this case, the initial investment is $1,000. In Year 1, the project generates $500, and in Year 2, it generates another $500. By the end of Year 2, the total cash flow is $1,000, which equals the initial investment. Therefore, the payback period is 2.00 years.

Wells IncIs Considering a Project That Has the Following Cash Flow