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In periods 0-4, a project has the following cash flows -3000, 1000, 1000, 1,380, 1000. Its...

In periods 0-4, a project has the following cash flows -3000, 1000, 1000, 1,380, 1000. Its cost of capital is 10 percent. What is the project’s payback period?

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Answer #1

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)]

= 2+(1000/1380)

= 2.72 years

Answer = 2.72 years

Note:

Year Investment Cash Inflow Net Cash Flow
0 -3,000.00 -    -3,000 (Investment + Cash Inflow)
1 -    1,000.00 -2,000 (Net Cash Flow + Cash Inflow)
2 -    1,000.00 -1,000 (Net Cash Flow + Cash Inflow)
3 -    1,380.00 380 (Net Cash Flow + Cash Inflow)
4 -    1,000.00 1,380 (Net Cash Flow + Cash Inflow)
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