Pay Back Period is a capital budgeting technique which shows the period at which the initial investment is returned in a project.
Payback Period = A + (B ÷ C)
In the above formula,
A is the last period with a negative cumulative cash flow = 2 Years;
B is the absolute value of cumulative cash flow at the end of the period A = $3,400;
C is the total cash flow during the period after A = $3,600
Payback period = 2 + ( $3,400 ÷ $3,600)
= 2 + 0.9444
= 2.944 years
Therefore, the payback period is 2.944 years.
*Note: The image attach shows the calculation of Cumulative cash flows)
