A project with an initial cost of $28,300 is expected to generate cash flows of $6,900, $9,000, $9,250, $8,150, and $7,700 over each of the next five years, respectively. What is the project's payback period

3.39 years

Explanation:

The computation of the project payback period is shown below:

Initial cost = $28,300

Generated cash flows         Cumulative cash flows

1            $6,900                    $6,900

2           $9,000                     $6,900 + $9,000 = $15,900

3           $9,250                     $15,900 + $9,250 = $25,150

4           $8,150                      

5           $7,700

Here the payback period is

= 3 years + ($28,300 - $25,150) ÷ $8,150

= 3 years + 0.386

= 3.39 years

hence, the payback period is 3.39 years

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