Problem. Assume the following cash flow for 2 projects.

Assuming that the cash flows are occurring at

the end of the year. Find the payback period for both these projects.
YEAR PROJECT 1 PROJECT 2

0 -1000 -1000
1 500 100
2 400 300
3 200 500
4 100 600
5 100 700

ANSWERS & SOLUTIIONS:

Project 1

0 1 2 3 4 5 -1000 500 400 200 100 100 900 1,100 1,200 1,300

2+100/200 = 2.5 years

Project 2

0 1 2 3 4 5 -1000 100 300 500 600 700 400 900 1,500 2,200

3+100/600 = 3.17 years