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13 June, 04:12

Worthington Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3Cash flows - $500 $150 $200 $300a. 2.03 yearsb. 2.25 yearsc. 2.50 yearsd. 2.75 yearse. 3.03 years

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  1. 13 June, 04:20
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    c. 2.50 years

    Explanation:

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

    In year 0 = $500

    In year 1 = $150

    In year 2 = $200

    In year 3 = $300

    If we sum the first 2 year cash inflows than it would be $350

    Now we deduct the $350 from the $500, so the amount would be $150 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 $300

    So, the payback period equal to

    = 2 years + ($150 : $300)

    = 2.50 years

    In 2.50 yeas, the invested amount is recovered.
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