A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following four years.What is the non-discounted payback of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | }
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 250,000 \
\hline 1 & \$ 50,000 \
\hline 2 & \$ 60,000 \
\hline 3 & \$ 70,000 \
\hline 4 & \$ 80,000 \
\hline
\end{array}$$
A) 3.875 years
B) 3.625 years
C) 3.750 years
D) 3.500 years

Question

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following four years.What is the non-discounted payback of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & - \$ 250,000 \
\hline 1 & \$ 50,000 \
\hline 2 & \$ 60,000 \
\hline 3 & \$ 70,000 \
\hline 4 & \$ 80,000 \
\hline
\end{array}$$
A) 3.875 years
B) 3.625 years
C) 3.750 years
D) 3.500 years

Quizplus · Accepted Answer

The non-discounted payback period is the number of years it takes for the cumulative cash flows to equal the initial investment. In this case, the initial investment is $250,000. The cumulative cash flows are as follows:Year 1: $50,000Year 2: $50,000 + $60,000 = $110,000Year 3: $110,000 + $70,000 = $180,000Year 4: $180,000 + $80,000 = $260,000Therefore, the non-discounted payback period is 3.875 years.

A Project Manager Is Using the Payback Method to Make