CAF-7 · Chapter 13 · Question 15 of 15
A project requires an initial investment of Rs. 40,000. It generates cash inflows of Rs. 15,000 in Year 1, Rs. 20,000 in Year 2, and Rs. 10,000 in Year 3. Assuming cash flows arise evenly throughout the year, what is the exact Payback Period?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 2.5 years
Explanation
By the end of Year 2, Rs. 35,000 has been recovered (15,000 + 20,000), leaving a shortfall of Rs. 5,000. In Year 3, Rs. 10,000 is generated. The time required in Year 3 is 5,000 / 10,000 = 0.5 years. Total payback period = 2.5 years.
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