Beyer Company is considering the purchase of an asset for $240,000. It is expect

Question

Beyer Company is considering the purchase of an asset for $240,000. It is expected to produce the follow flows occur evenly within each year. Year 1 Year 2 Year 3 Year 4 Year 5 $60,000 36, 000 $60,000$150,000 $25,000 $331,000 Total Net cash flos Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a Payback Period answer to 2 decimal place.) Cash inflow Year (Outflow) Cumulative Net Cash Inflow (Outflow) $ (240,000) Payback period Prev 10f 71ll Next >

Explanation / Answer

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

3+(84000/150,000)

=3.56 years.

Year Cash inflow(outflow) Cumulative Net Cash Inflow(Outflow) 0 (240,000) (240,000) 1 60000 (180,000) 2 36000 (144,000) 3 60,000 (84000) 4 150,000 66000 5 25000 91000 Payback period= 3.56 years.

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