Question

Cash Flows
Year	Project A
0	-$100.00
1	$50.00
2	$60.00
3	$10.00
4	$3.00
WACC =	10.00%

Given the information in the table, what is project A's payback period?

2.02 years

1.83 years

2.00 years

1.67 years

Answer 1

The correct answer is 1.83 Years

Note :

Year	Investment	Cash Inflow	Net Cash Flow
0	-100	-	-100	(Investment + Cash Inflow)
1	-	50	-50	(Net Cash Flow + Cash Inflow)
2	-	60	10	(Net Cash Flow + Cash Inflow)
3	-	10	20	(Net Cash Flow + Cash Inflow)
4	-	3	23	(Net Cash Flow + Cash Inflow)

Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

= 1 + (50/60)

= 1.83