Beyer Company is considering the purchase of an asset for $290,000. It is expect
ID: 2543715 • Letter: B
Question
Beyer Company is considering the purchase of an asset for $290,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year Year 1 Year 2 Year 3 Year 4Year 5 Total $70,000 $40,000 $70,000 $200,000 $20,000 $400,000 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.) Year Cash inflow Cumulative Net Cash Inflow (outflow) (outflow) 0 S (290,000) Payback period eBook &Resources; Type here to searchExplanation / Answer
Solution: 3.55 years
Year
Cash flows
Cumulative cash flow
0
-290,000
-290,000
1
70,000
-220,000
2
40,000
-180,000
3
70,000
-110,000
4
200,000
90,000
5
20,000
110,000
Working:
Year
Cash flows
Cumulative cash flow
1
70,000
70000
2
40,000
110,000
3
70,000
180,000
4
200,000
380,000
5
20,000
400,000
3 + [ (290,000 - 180,000 ) / 200000]
3+0.55
3.55 Years
Year
Cash flows
Cumulative cash flow
0
-290,000
-290,000
1
70,000
-220,000
2
40,000
-180,000
3
70,000
-110,000
4
200,000
90,000
5
20,000
110,000
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