Services United is considering a new project that requires an initial cash investment of $26,000.The project will generate cash inflows of $2,500, $11,700, $13,500, and $10,000 over each of the next four years, respectively.How long will it take to recover the initial investment?
A)2.74 years
B)2.87 years
C)2.99 years
D)3.27 years
E)3.68 years

Question

Quizplus · Accepted Answer

To recover the initial investment of $26,000, we calculate the cumulative cash inflows: Year 1: $2,500, Year 2: $14,200 ($2,500 + $11,700), Year 3: $27,700 ($14,200 + $13,500). By the end of Year 3, the investment is recovered. The remaining $1,800 ($26,000 - $24,200) is recovered in a fraction of Year 3, calculated as $1,800/$13,500 = 0.133 years. Thus, the total time is approximately 2.87 years.

Services United Is Considering a New Project That Requires an Initial