## 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)