Question

Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash flows -$475 $150 $200 $300 a. 2.88 years b. 2.85 years c. 2.42 years d. 1.96 years e. 2.47 years

Answer 1

c. 2.42 years

Step-by-step explanation:

The computation of the payback period is shown below:

Year Cash flow Cumulative cash flow

0 -$475 -$475

1 $150 -$325

2 $200 -$125

3 $300 $175

Now the payback period is

= 2 years + $125 ÷ $300

= 2.42 years