Exercise 25-1 Payback period computation; uneven cash flows LO P1 Beyer Company

Question

Exercise 25-1 Payback period computation; uneven cash flows LO P1 Beyer Company is considering the purchase of an asset for $400,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Total Year 1 Year 2 Year 3 $80,000 $80,000 $70,00 $200,000 $15,000 $445,000 Year 4 Year5 Net cash flows Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) Cumulative Net Cash Inflow (Outflow) Cash inflow Year (Outflow 0 %(400,000) 4 Payback period

Explanation / Answer

Calculate paybackperiod :

payback period = 3 Years +170000/200000 = 3.85 Years

Year Cash inflow (outflow) Cumulative net cash inflow (outflow) 0 -400000 -400000 1 80000 -320000 2 80000 -240000 3 70000 -170000 4 200000 30000 5 15000 45000

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