Safe Driving School is considering purchasing new autos costing $235,000

The company's management has estimated that the autos will generate cash flows as follows:

Year 1 $ 80,000
Year 2 $ 85,000
Year 3 $ 95,000
Year 4 $ 45,000

Considering the residual value is zero, calculate the payback period. Round to one decimal place
What will be an ideal response

By the end of 2 years, Safe Driving has recovered $165,000 of the $235,000 initially invested, so it is $70,000 short of payback. Because the expected net cash inflow in year 3 is $95,000, the company will have recovered more than the initial investment. The payback is calculated as follows:
2 years + ($70,000 / $95,000 ) = 2.7 years.