Question

• year 1: $3,000
• year 2: $8,000
• year 3: $14,000
• year 4: $19,000
• year 5: $22,000
• year 6: $28,000

in what year does payback occur?
year 4
year 3
year 6
year 5

Explanation:

Step1: Assume Initial Investment (Missing, but typical for payback: Let's assume initial investment is, say, $3 + 8 + 14 = 25k? Wait, no, payback is when cumulative cash flow ≥ initial investment. Wait, maybe initial investment is, let's check cumulative:

Year 1: $3k (cumulative: 3k)
Year 2: 3+8=11k
Year 3: 11+14=25k
Year 4: 25+19=44k
Wait, maybe initial investment is $25k? Wait, no, maybe I misread. Wait, the problem is about payback period, which is when cumulative cash inflow equals initial investment. Wait, maybe the initial investment is, let's see the options. Wait, maybe the initial investment is $25k (3+8+14=25). Then Year 3 cumulative is 25k, but wait Year 3 cash is 14k. Wait, no, maybe initial investment is $25k? Wait, no, let's recalculate:

Wait, maybe the initial investment is $25,000. Then:

Year 1: $3,000 (cumulative: 3k)
Year 2: 3k + 8k = 11k
Year 3: 11k +14k=25k. So if initial investment is $25k, payback is Year 3. But wait, maybe initial investment is different. Wait, maybe the initial investment is $24k? No, the options include Year 3. Wait, maybe the initial investment is $25k, so cumulative in Year 3 is 25k, so payback in Year 3. But wait, let's check the options. The options are Year 4,3,6,5. Wait, maybe my initial investment assumption is wrong. Wait, maybe initial investment is $20k? No, Year 3 cumulative is 25k. Wait, maybe the initial investment is $25k, so payback in Year 3. But let's re-express:

Wait, maybe the initial investment is $25,000. Then:

• Year 1: Cumulative = 3k (less than 25k)
• Year 2: 3+8=11k (less)
• Year 3: 11+14=25k (equals). So payback in Year 3. But wait, maybe the initial investment is higher? Wait, no, the cash flows are increasing. Wait, maybe the initial investment is $24k? Then Year 3 cumulative is 25k, which is more than 24k, so payback in Year 3. Alternatively, maybe the initial investment is $25k, so payback in Year 3. So the answer is Year 3.

Step2: Confirm. If initial investment is $25,000, cumulative cash flow in Year 3 is 3+8+14=25k, so payback occurs in Year 3.

Answer:

Year 3 (Option: Year 3)