What is the payback period for a $20,000 project that is expected to return $6,000 for the first two years and $3,000 for Years 3 through 5?
A) 3 1/2
B) 4 1/2
C) 4 2/3
D) 5

Question

Quizplus · Accepted Answer

The payback period is the amount of time it takes for an investment to generate enough cash flow to cover the initial investment. In this case, the initial investment is $20,000. The project is expected to return $6,000 for the first two years and $3,000 for Years 3 through 5. Therefore, the total cash flow over the five-year period is $20,000. The payback period is the amount of time it takes for the cash flow to reach $20,000. In this case, the payback period is 4 2/3 years.

What Is the Payback Period for a $20,000 Project That