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A project has the following cash flows for years 0 through 4. What is the payback...

A project has the following cash flows for years 0 through 4. What is the payback period?

year 0 1 2 3 4
CF -5,199 2,627 3,082 1,736 18 gazillion
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Answer #1

The net cash flows are:
Year 0:-5199
Year 1:2627
Year 3:3082
Year 4:1736

Cumulative net cash flows are:
Year 0:-5199
Year 1:2627-5199=-2572
Year 3:3082-2572=510
Year 4:1736

Payback period=Full years until maturity + (Unrecovered cost at the beginning of last year)/(Cash flow during the last year)
Full years until maturity=1
Unrecovered cost at the beginning of last year=2572
Cash flow during the last year=3082
Payback period=1+2572/3082
=1+0.834523037
=1.834523037 years

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