Problem 81 Calculating Payback [LO 1]
Consider the following cash flows: 
Year  Cash Flow  
0  –$6,800  
1  1,950  
2  4,100  
3  1,750  
4  1,450  

Required: 
What is the payback period for the above set of cash flows? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Payback period  years 
Explanation:
To
calculate the payback period, we need to find the time the project
needs to recover its initial investment. After two years, the project
has created:

$1,950 + 4,100 = $6,050 
in cash flows. The project still needs to create another: 
$6,800 – 6,050 = $750 
in
cash flows. During the third year, the cash flows from the project will
be $1,750. 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 + ($750 / $1,750) 
Payback = 2.43 years 