McGlothin Inc. is considering a project that has the following cash flow data. What is the project's payback?
$\begin{array} { l c c c c }
\text { Year } & 0 & 1 & 2 & 3 \
\text { Cash flows } & - \$ 1,150 & \$ 500 & \$ 500 & \$ 500
\end{array}$

Question

McGlothin Inc. is considering a project that has the following cash flow data. What is the project's payback?
$\begin{array} { l c c c c } 
\text { Year } & 0 & 1 & 2 & 3 \
\text { Cash flows } & - \$ 1,150 & \$ 500 & \$ 500 & \$ 500
\end{array}$

Quizplus · Accepted Answer

$\begin{array} { l c c c c } 
\text { Year } & 0 & 1 & 2 & 3 \
\text { Cash flows } & - \$ 1,150 & \$ 500 & \$ 500 & \$ 500 \
\text { Curmlative CF } & - \$ 1,150 & - \$ 650 & - \$ 150 & \$ 350\
\text { Payback }=2.30 \text { years } & - & - & - & 2.30
\end{array}$ 
Payback = last year before cum CF turns positive + abs. val. last neg. cum CF/CF in payback year.

McGlothin Inc Year 0123 Cash flows −$1,150$500$500$500\begin{array} { l c c c c } \text { Year } & 0 & 1 & 2 & 3 \\\text { Cash flows } & - \$ 1,150 & \$ 500 & \$ 500 & \$ 500\end{array} Year Cash flows ​0−$1,150​1$500​2$500​3$500​

McGlothin Inc $\begin{array} { l c c c c } \text { Year } & 0 & 1 & 2 & 3 \\\text { Cash flows } & - \$ 1,150 & \$ 500 & \$ 500 & \$ 500\end{array}$