Question

You are considering a project with an initial cost of $4,300. What is the payback period for this project if the cash inflows are $550, $970, $2,600, and $500 a year over the next four years, respectively? Round to the second decimal place. Type only numbers without any unit ($, %, etc.)

Answer 1

Answer:

3.36 years

Explanation:

The cash outflows and the cash inflows are shown below:

In year 0 = $4,300

In year 1 = $550

In year 2 = $970

In year 3 = $2,600

In year 4 = $500

When we add the first three-year cash inflows, it would be $4,120 Now we subtract the $4,120 from the $4,300, so the sum would be $180 as if we added the fourth-year cash inflow to the initial investment, then it exceeds.

Therefore, we subtract it, and the next year's cash inflow will be $500.

= 3 years + $180 ÷ $500

= 3.36 years