Sunday 22 June 2014

Beyer Company is considering the purchase of an asset for $250,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 50,000 $ 36,000 $ 60,000 $ 130,000 $ 24,000 $ 300,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your payback period to 2 decimal places.)

Beyer Company is considering the purchase of an asset for $250,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.


   Year 1 Year 2 Year 3 Year 4 Year 5 Total
  Net cash flows $ 50,000 $ 36,000 $ 60,000 $ 130,000 $ 24,000 $ 300,000



Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your payback period to 2 decimal places.)

Annual Net
Cash Flows
Cumulative
Cash Flows
  Year 1 $ 50,000 $ -200,000
  Year 2 36,000 -164,000
  Year 3 60,000 -104,000
  Year 4 130,000 26,000
  Year 5 24,000 50,000


  
  Cost of investment $ 250,000
  Paid back in years 1-3 -104,000
  

  Paid back in year 4 $ 104,000
  





Amount paid back in year 4 $104,000
Part of year =
 =
 =  0.80
Net cash flow in year 4 $130,000

Payback period = 3 + 0.80 = 3.80 years, (or nearly 3 years and 9 months)

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