What is the payback period for a $20,000 project that is expected to return $6000 for the first two years and $3000 for years 3 through 5?
A)3 1/2
B)4 1/2
C)4 2/3
D)5

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to find out how long it takes to recover the initial investment.

Year 1: $20,000 - $6,000 = $14,000 remaining
Year 2: $14,000 - $6,000 = $8,000 remaining
Year 3: $8,000 - $3,000 = $5,000 remaining
Year 4: $5,000 - $3,000 = $2,000 remaining
Year 5: $2,000 - $3,000 = -$1,000 (payback is in year 4)

Therefore, the payback period is 4 years and 2/3 of a year, or 4 2/3 years. Choice C is the best answer.

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