Question

What is the payback period for a project with an initial investment of $90,000 that provides an annual cash inflow of $20,000 for the first three years and $12500 per year for years four and five, and $25000 per year for years six through eight?

Answer 1

year	Total Flow	Cumulative flow
0	(90,000)	(90,000)
1	20,000	(70,000)
2	20,000	(50,000)
3	20,000	(30,000)
4	12,500	(17,500)
5	12,500	(5,000)
6	25,000	20,000
7	25,000	45,000
8	25,000	70,000

We must pick the year in which the outflows have become positive.in this problem it is 5th year

and divide the total cumulative flow in the year in which cash flows became positive by the total flow of the consecutive year i.e 5,000/ 25,000 = .2

so payback period is 5+.2 = 5.2