Homework SourseWhat is the payback period for the following set of cash flo
What is the payback period for the following set of cash flows? Year Cash Flow 0 ?$ 3,100 1 1,300 2 2,700 3 3,000 4 1,600
Solution
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+(1800/2700)
=1.67 years(Approx).
| Year | Cash flows | Cumulative Cash flows |
| 0 | (3100) | (3100) |
| 1 | 1300 | (1800) |
| 2 | 2700 | 900 |
| 3 | 3000 | 3900 |
| 4 | 1600 | 5500 |
