The Golden Goose is considering a project with an initial cost of $46,700.The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years.What is the payback period?
A)2.87 years
B)3.23 years
C)3.41 years
D)3.79 years
E)4.23 years

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the cumulative cash inflows to equal the initial investment. After 4 years, the cumulative inflow is $44,000. In the 5th year, $2,700 more is needed, which takes 0.23 of a year ($2,700/$12,000). Thus, the payback period is 4.23 years.

The Golden Goose Is Considering a Project with an Initial