Answer:
B. 2.8 years
Explanation:
Initial investment = -120,000+ 8,000 = -112,000
Yr 1 cash inflow = 40,000, hence net CF = 40,000-112,000 = -72,000
Yr 2 cash inflow = 40,000, hence net CF = 40,000- 72,000 = -32,000
Yr 3 cash inflow = 40,000, hence net CF = 40,000-32,000 = 12,000
Payback period = last year with negative net CF + (absolute net CF that year/ total CF the following year)
= 2 + (32,000/40,000)
= 2 + 0.8
= 2.8 years
