Answer:
b. 2.15 years
Explanation:
The following table presents the accumulated cash flow (ACF) after each year of operation:
[tex]\begin{array}{ccc}Year&cash\ flow&ACF\\0&-\$1,075&-\$1,075\\1&\$500&-\$575\\2&\$500&-\$75\\3&\$500&\$425\end{array}[/tex]
It can be observed that the payback occurs when there is a $75 cash flow during the third year. Assuming that cash flow is spread out evenly within each year, the payback period is:
[tex]P=2+\frac{75}{500} \\P=2.15\ years[/tex]
The project's payback is 2.15 years.
