E connect FINANCE 9 Quiz Question 1 of 20 value 250 points P

E connect FINANCE 9 Quiz Question 1 (of 20 value: 2.50 points Problem 9-1 Calculating Payback [LO2 What is the payback period for the following set of cash flows? (Round your answer to 2 decimal pla e.9 32.16.) Cash Year Flow 0 $4,900 1,150 1,350 2,230 1,250 Payback period years Worksheet

Solution

by the end of year 3, 170 of investment is to be recovered. in year 4 total cashflow is 1250 which is more than required cash flow to recover balance investment of 170.

That means only a portion of year 4 is required to recover 170 which is = 170/1250 = 0.136

Total period required = 3 years plus 0.136 years = 3.136 years = 3.14 years (rounded off)

Year	Cash flow	Cummulative cash flow
0	-4900	-4900
1	1150	-3750
2	1350	-2400
3	2230	-170
4	1250	1080