Consider the following project:
Year | 0 | 1 | 2 | 3 | 4 |
---|---|---|---|---|---|
Project A | -20.00 | 8.00 | 7.00 | 12.00 | 6.00 |
Find the payback for this project. (ROUND TO TWO DECIMAL
PLACES)
Given cash flow about a project,
Its cumulative cash flows are also calculated as below:
cumulative cash flow = previous year cumulative cash flow + current year cash flow
Year | Cash flow | Cumulative cash flow |
0 | -20 | -20 |
1 | 8 | -12 |
2 | 7 | -5 |
3 | 12 | 7 |
4 | 6 | 13 |
Payback period of a project = year before the cumulative cash flow turns positive + (cumulative cash flow of period before recovery/cash flow of recovery period)
So, here Payback period = 2 + 5/12 = 2.42 years
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