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1 July, 09:56

Poder Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3Cash flows - $750 $300 $325 $350a. 1.91 yearsb. 2.12 yearsc. 2.36 yearsd. 2.59 yearse. 2.85 years

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  1. 1 July, 11:23
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    c. 2.36 years

    Explanation:

    In the payback, we analyze in how many years the invested amount is recovered. The computation is shown below:

    In year 0 = $750

    In year 1 = $300

    In year 2 = $325

    In year 3 = $350

    If we sum the first 2 year cash inflows than it would be $625

    Now we deduct the $625 from the $750, so the amount would be $125 as if we added the fourth year cash inflow so the total amount exceed to the initial investment. So, we deduct it

    And, the next year cash inflow is $350

    So, the payback period equal to

    = 2 years + ($125 : $350)

    = 2.36 years

    In 2.36 yeas, the invested amount is recovered.
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