What is the payback period for a $16,700 investment with the following cash flows? $$\begin{array} { | c | r | }
\hline \text { Year } & \text { Cash Flow } \
\hline 1 & \$ 2,100 \
\hline 2 & 6,800 \
\hline 3 & 6,900 \
\hline 4 & 7,300 \
\hline 5 & 5,100 \
\hline
\end{array}$$
A)3.12 years
B)3.89 years
C)2.12 years
D)3.44 years
E)3.67 years

Question

What is the payback period for a $16,700 investment with the following cash flows? $$\begin{array} { | c | r | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 1 & \$ 2,100 \
\hline 2 & 6,800 \
\hline 3 & 6,900 \
\hline 4 & 7,300 \
\hline 5 & 5,100 \
\hline
\end{array}$$
A)3.12 years
B)3.89 years
C)2.12 years
D)3.44 years
E)3.67 years

Quizplus · Accepted Answer

The cumulative cash flow becomes positive between years 3 and 4. By the end of year 3, the cumulative cash flow is $15,800. To recover the remaining $900, it takes $900/$7,300 = 0.12 of a year. Thus, the payback period is 3 + 0.12 = 3.12 years.

What Is the Payback Period for a $16,700 Investment with the Following