Beyer Company is considering the purchase of an asset for $250,000. It is expect

Question

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 within each year Year 4 Year 5 Total Year 1 Year 2 Year 3 $50,0e0 $36,00 $6, $130,0 $24,90e $300,0ee oints Net cash flows Compute the payback perlod for thls Investment. (Cumuletlve net cash outflows must be entered wlth a minus sign. Round your Payback Perlod answer to 2 decimal place.) Cash inflow Cumulative Net ar(Outflow) Cash Inflow Outflow) Hint 0 S (250,000) Print 2 References Payback period

Explanation / Answer

Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

= 3 + ( 104,000 / 130,000)

= 3.80 years

Hence the correct answer is :

Year Cash Inflow (Ouflow) Cumulative net Cash inflow (outflow) 0 -2,70,000.00 -2,50,000.00 1 50,000 -2,00,000.00 2 36,000 -1,64,000.00 3 60,000 -1,04,000.00 4 1,30,000 26,000.00 5 24,000 50,000.00 Payback Period = 3.80 Years

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