The management of Unter Corporation, an architectural design firm, is considerin

Question

The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Cash Year Investment flow $42,000 3,000 5,000 6,000 $12,000 $14,000 $16,000 $15,000 $13,000 $11,000 $10,000 $10,000 10 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the payback period of the investment. (Round your answer to 1 decimal place.) ck years Required 2> Required 1

Explanation / Answer

1) Year investment cash flow 1 -     42,000.00      3,000.00 - 39,000.00 2 -        5,000.00      6,000.00 - 38,000.00 3    12,000.00 - 26,000.00 4    14,000.00 - 12,000.00 5    16,000.00 6    15,000.00 7    13,000.00 8    11,000.00 9    10,000.00 10    10,000.00 Pay back period is the time period in which investment is recovered through cash flows. pay back period=4 years+12000/16000*12                                =4 years 9 months. that is they can recover 35000 from 4 years and balance 12000 from the 5th year. But it takes only 9 months of 5th year to recover 12000 out of the 16000 cash flow of the 5th year. 2)The payback period will not be affected if the cash flow in the last year were several times as large because investments were recovered in 5th year itself

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