Question

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)

Answer 1

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