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To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the project has...

To calculate the payback period, we need to find the time that the project has recovered its initial
investment. After two years, the project has created:
$1,500 + 2,600 = $4,100
in cash flows. The project still needs to create another:
$4,800 – 4,100 = $700
in cash flows. During the third year, the cash flows from the project will be $3,400. So, the payback
period will be 2 years, plus what we still need to make divided by what we will make during the
third year. The payback period is:
Payback = 2 + ($700 / $2,900) = 2.24 years

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