O eztomheducationcomhmtpx Chapter 9 Quiz Question 10 of 20 1

O ezto.mheducation.com/hm.tpx Chapter 9 Quiz Question 10 (of 20) 10. 2.50 points P9.1 Calculating Payback [L02] What is the payback period for the following set of cash flows? -$ 5,300 1500 2,600 1,600 1,800 0 O 270 years O 277 years O 275 years O 305 years O 2.89 years

Solution

by the end of year 2, 1200 of investment is to be recovered. but year 3 cash flow is more than 1200 which means only a portion of year 3 cash flow covers the balance investment. Portion of year 3 = 1200/1600= 0.75

Total period = 2 years plus 0.75 = 2.75 years

Year	Cash flow	Cummulative cash flow
0	-5300	-5300
1	1500	-3800
2	2600	-1200
3	1600	400
4	1800	2200