Below is the cash flow of project Alpha. (EOY: end of year) EOY Cash Flow 0 - $200,000 1 $25,000 2 $25,000 3 $50,000 4 $50,000 5 $50,000 6 $50,000 7 $50,000 What is the payback period of this project

Payback = 5 years

Explanation:

Giving the following information:

Cash Flow:

0 - $200,000

1 $25,000

2 $25,000

3 $50,000

4 $50,000

5 $50,000

6 $50,000

The payback period is the time required to cover for the initial investment:

Payback = - 200,000 + (25,000 + 25,000 + 50,000 + 50,000 + 50,000)

Payback = 5 years