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 Year Investment Cash Inflow $1,000 $ 2,000 $ 2,500 $4,000 $5,000 $6,000 $5,000 $4,000 $ 3,000 $ 2,000 1 2 $15,000 $ 8,000 4 7 8 9 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 Payback period years

Explanation / Answer

2. No, the payback period will not be affected due to change in last year because payback period says time period in which business will get inflow of its investment and here payback period is 6.5 years only.

1. Payback period for investment Investment 23000 ($ 15000+ $ 8000) Cash inflow Year Cash inflow Cummulative Cash Flow 1 1000 1000 2 2000 3000 3 2500 5500 4 4000 9500 5 5000 14500 6 6000 20500 7 5000 25500 8 4000 29500 9 3000 32500 10 2000 34500 Recovery of $ 23000 would be betweem 6 to 7 years Calculation (23000-20500)/(25500-20500) 0.50 So, Payback period is 6.5 Years or 6 years 6 months.

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