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A project with an initial cost of $27,600 is expected to generate cash flows of $6,700,...

A project with an initial cost of $27,600 is expected to generate cash flows of $6,700, $8,800, $9,150, $8,050, and $7,500 over each of the next five years, respectively. What is the project's payback period?

Multiple Choice

  • 3.48 years

  • 3.37 years

  • 3.68 years

  • 3.58 years

  • 3.74 years

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Answer #1

Payback period = The year in which the cumulative cash flow was last negative + (the positive value of the cumulative cash flow in that year) / (cash flow in the next year).

Payback period = 3 + 2,950/8,050

Payback period = 3.3664596273

Payback period = 3.37 Years

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