Question

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

Year                            0                1                2                3   

Cash flows              -$750         $300          $325          $200

Hint: Payback period: The number of years required to recover a project’s cost. Cumulative cash flow computation ignores the time value of money by using actual cash flows.

Group of answer choices

2.50 years

2.36 years

2.63 years

2.42 years

2.83 years

Answer 1

Payback period is the period in which initial investment is recovered.

Year	Opening balance	CF	Closing Balance
0	750	0	750
1	750	300	450
2	450	325	125
3	125	200	-75

PBP = Year in which least +ve Closing Balance + [ Closing balance at that year / Cash flow in Next Year ]

= 2 + 125/200

= 2+ 0.625

= 2.625 Years i.e., 2.63 years

Option 3 hsa to be selected

Pls do rate, if the answer is correct and comment, if any further assistance is required.