Answer:
c. 2.30 years
Explanation:
In the payback, we analyze in how many years the invested amount is recovered. The computation is shown below:
In year 0 = $1,150 (Initial investment)
In year 1 = $500
In year 2 = $500
In year 3 = $500
If we sum the first 2 year cash inflows than it would be $1,000
Now we deduct the $1,000 from the $1,150 , so the amount would be $150 as if we added the fourth year cash inflow so the total amount exceed to the initial investment. So, we deduct it
And, the next year cash inflow is $500
So, the payback period equal to
= 2 years + ($150 ÷ $500)
= 2.30 years
In 2.30 yeas, the invested amount is recovered.
