Taggart Inc. is considering a project that has the following cash flow data. What is the projects payback? Year 0 1 2 3 Cash flows -$1,150 $500 $500 $500 Select one: a. 1.86 years b. 2.07 years c. 2.30 years d. 2.53 years e. 2.78 years

Taggart Inc. is considering a project that has the following cash flow data. What is the projects payback? Year 0 1 2 3 Cash flows -$1,150 $500 $500 $500 Select one: a. 1.86 years b. 2.07 years c. 2.30 years d. 2.53 years e. 2.78 years

Answer:The period of payback of the project is 2.30 years. Therefore, the correct answer is CExplanation:We will computing the Cumulative Cash Flow from Year 0 to Year 3Cumulative Cash Flow Year 0= Cash Flow of Year 0= -$1,150Cumulative Cash Flow of Year 1= Cash Flow of Year 1 + Cash Flow of Year 0= $500 + (-$1,150)

= -$650Cumulative Cash Flow of Year 2= Cash Flow of Year 2 + Cumulative Cash Flow Cash Flow of Year 1= $500 + (-$650)

= -$150Cumulative Cash Flow of Year 3= Cash Flow of Year 3 + Cumulative Cash Flow Cash Flow of Year 2= $500 + (-$150)

= $350Now, Computing the Pay back period with the formula:Pay back period= 2 + (Cumulative Cash Flow of year 2 / Cash flow of year 3)= 2 + (-$150/ $500)

= 2 + 0.3

= 2.3 years