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