Answer:
Net cashflow = Cash inflow - Cash outflow
Year 1 Net cashflow = $30,000 - $12,000 = $18,000
Year 2 Net cashflow = $45,000 - $20,000 = $25,000
Year 3 Net cashflow = $60,000 - $25,000 = $35,000
Year 4 Net cashflow = $50,000 - $20,000 = $20,000
PAYBACK PERIOD
Year Cashflow Cummulative cashflow
0 (88,000) (88,000)
1 18,000 (70,000)
2 25,000 (45,000)
3 35,000 (10,000)
4 20,000 10,000
Payback period = 3 + 10,000/20,000
Payback period = 3.5 years
The correct answer is B
Explanation:
In this question, there is need to determine the annual net cashflow, which is the the difference between annual cash inflow and annual cash outflow. The payback period is calculated by deducting the initial outlay from the annual net cashflow.
