A company is considering two projects. Project A Project B Initial investment $300,000 $300,000 Cash inflow Year 1 $60,000 $90,000 Cash inflow Year 2 $60,000 $80,000 Cash inflow Year 3 $60,000 $80,000 Cash inflow Year 4 $60,000 $50,000 Cash inflow Year 5 $60,000 $70,000 What is the payback period for Project B

Payback Period = 3 years

Explanation:

Years Cash flow (Out flow) Net cash flow Cumulative cash flow

0 - 300,000 - - 300,000

1 90,000 90,000 - 210,000

2 80,000 80,000 - 130,000

3 80,000 80,000 - 50,000

4 50,000 50,000 0

5 70,000 70,000 70,000

Payback Period = 3 years

It means it will take 3 years of period to payback the project B Initial investment of $300,000