Mansi Inc.is considering a project that has the following cash flow data.What is the project's payback?

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to find the point at which the cumulative cash inflows equal the initial investment of $250,000. 
Year 1: $50,000
Year 2: $75,000
Year 3: $100,000
Year 4: $125,000
Year 5: $150,000

Cumulative cash inflows: 
Year 1: $50,000 
Year 2: $125,000 ($50,000 + $75,000) 
Year 3: $225,000 ($125,000 + $100,000) 
Year 4: $350,000 ($225,000 + $125,000) 
Year 5: $500,000 ($350,000 + $150,000)

The payback period is the point at which cumulative cash inflows equal the initial investment, which occurs in Year 4 (the end of Year 4). 
The payback period is 3 years + ($125,000 remaining investment / $125,000 cash flow in Year 4) = 3 + 1.62 (rounded to two decimal places)
Therefore, the payback period is 1.62 years.

Mansi IncIs Considering a Project That Has the Following Cash Flow