Calculation of Payback period

[warsal]

To calculate payback period

E.g.
Capital Outlay = 10000

Cash flows = 4000 / year (assuming that cash flows arise at the <b>end of the year</b>)

Then should payback period be 10000/4000 = <u>2.5</u> years

OR

Payback should be <u>3</u> years since the third cash flow would have been received only at the end of year 3?

Thanks