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9 May, 07:18

Suzanne's Cleaners is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 4 5Cash flows - $1,100 $300 $310 $320 $330 $340a. 2.31 yearsb. 2.56 yearsc. 2.85 yearsd. 3.16 yearse. 3.52 years

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  1. 9 May, 09:37
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    3.52 years

    Explanation:

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

    In year 0 = $1,100

    In year 1 = $300

    In year 2 = $310

    In year 3 = $320

    In year 4 = $330

    In year 5 = $340

    If we sum the first 3 year cash inflows than it would be $930

    Now we deduct the $930 from the $1,100, so the amount would be $170 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 $320

    So, the payback period equal to

    = 3 years + ($170 : $330)

    = 3.52 years

    In 3.52 years, the invested amount is recovered.
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