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There is a project with the following cash flows : Year Cash Flow 0 ?$23,700 1 7,000 2 7,700 3 7,100 4 5,100 What is the payback period? Multiple...

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Finance

There is a project with the following cash flows :

YearCash Flow
0?$23,700
17,000
27,700
37,100
45,100


What is the payback period?

Multiple Choice

  • 2.73 years

  • 4.00 years

  • 3.81 years

  • 3.63 years

  • 3.37 years

Answer & Explanation Solved by verified expert
4.0 Ratings (772 Votes)

Year 0 1 2 3 4
Cashflow(in $)             (23,700)                 7,000                       7,700                   7,100 5100
Cumulative Cashflow(in $)             (23,700)            (16,700)                     (9,000)                 (1,900)                   3,200

Payback Period = A+(B/C)

where

A - last period containing negative cumulative cash flow = 3

B - absolute value of cumulative cash flow in A = 1900

C - cash flow during the period after A = 5100

Payback Period = 3+(1900/5100)

= 3.37 years
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Transcribed Image Text

There is a project with the following cash flows :YearCash Flow0?$23,70017,00027,70037,10045,100What is the payback period?Multiple Choice2.73 years4.00 years3.81 years3.63 years3.37 years

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