McGlothin Inc.is considering a project that has the following cash flow data.What is the project's payback?
A)1.86 years
B)2.07 years
C)2.30 years
D)2.53 years
E)2.78 years

Question

McGlothin Inc.is considering a project that has the following cash flow data.What is the project's payback? 
A)1.86 years 
B)2.07 years 
C)2.30 years 
D)2.53 years 
E)2.78 years

Quizplus · Accepted Answer

Using the cumulative cash flows, we can see that the project's cash investment is recovered between year 2 and year 3. The payback period can be calculated as: 
Year 2 + [($200,000 - $94,000) / $86,000] = 2.30 years. Therefore, the correct answer is C.