Final answer:
The payback period for project A is 2 years.
Step-by-step explanation:
The payback period is the length of time it takes for the cash flows from a project to equal the initial investment. In this case, we have cash flows of C0 = -$1,000; C1 = $600; C2 = $400; and C3 = $1,500. To calculate the payback period, we need to find the point at which the cumulative cash flows equal or exceed the initial investment.
Starting with the first cash flow, we subtract it from the initial investment: -$1,000 + $600 = -$400. The next cash flow is added: -$400 + $400 = $0. Finally, the last cash flow is added: $0 + $1,500 = $1,500.
Therefore, the payback period is 2 years, as it takes 2 years for the cash flows to equal or exceed the initial investment. The payback period does not need to consider any further cash flows since the initial investment is fully recovered by the end of year 2.