Example 2 Payback Period) Rudolph Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project? (Round your answer to two decimal places.) I A) 2.12 years B) 1.88 years C) 4.00 years D) 3.00 years Answer: A Explanation: Rudolph Corp. Year CF Cumulative CE 0 $(1,450,000) $(1,450,000) 1 640,000 (810,000) 2 715,250 (94,750) 3 823,330 728,580 907,125 1,635,705 PB = Years before cost recovery + (Remaining cost to recover/ Cash flow during the year) = 2 + ($94,750 / $823,330) = 2.12 years Now, you try these