Question

Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback?

Year 0 1 2 3

Cash flows -$1,125 $500 $500 $500

a. 2.25 years b. 2.07 years c. 1.87 years d. 2.41 years e. 2.50 years

Answer 1

Payback period= Full years until recovery + unrecovered cost at the start of the year/cash flow during the year

Payback period= 2 years + 125/ 500

                         = 2 years + 0.25

                         = 2.25 years.

Therefore, the payback period of the project is 2.25 years.

Hence, the answer is option a.

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