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Hi can you please explain how they calculated the pay back period in this question? it reads 4 years + 1/8 = 4.125 where have they got the 1/8 from?
Many thanks
JemmaHi @jemma242
At the end of year 4 net cash flow is -$1,000. At the end of year 5 net cash flow is +$7,000.
So, during year 5 Gold will collect $8,000.
Gold need to collect $1,000 to have zero net cash flow after the end of year 4, and they will collect it during 1/8 of the year 5(supposing that cash flows are received evenly through the year).
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