Question

Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash flows -$500 $150 $200 $300 2.03 years 2.25 years 2.50 years 2.75 years 3.03 years

Answer 1

Answer:

Payback period = 2.5 years

Explanation:

given data

Year    0            1           2           3

cash    -$500  $150   $200   $300

to find out

What is the project's payback

solution

Year        Cash flows   Cumulative Cash flows

0                 500             500

1                  150              350

2                 200             150

3                 300              150

so

Payback period = Last period with a negative cumulative cash flow +(Absolute value of cumulative cash flows at that period ÷ Cash flow after that period)      .........................1

put here value we get

so

Payback period = $2+ \frac{150}{300}$    

Payback period = 2.5 years