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 58,000 4,000 $ 8,0008,000 $11,000 $14,000 $17,000 $15,000 $13,000 $11,000 $10,000 $10,000 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 Required 2 Determine the payback period of the investment. (Round your answer to 1 decimal place.) Payback period years Required 1 Required 2>

Explanation / Answer

Answer:-1)-

Payback period =6+(12000/15000)

=6+.8 = 6.8 years

Explanation:-

Payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques.

In case when cash inflow are even, the formula to calculate payback period is:

Payback period =Initial investment / Cash Inflow per period

When cash inflows are uneven, then calculate cumulative net cash flow for each period and

Then use the following formula for payback period:

Payback period =A+B/C

Where:-

A is the last period with a negative cumulative cash flow;
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A

2)-No, the payback period will not be affected whether cash inflows in the last year are several times as large because investment has been recovered fully in earlier years.

Unter Corporation Calculation of pay back period Year Investment Cash Inflows Unrecovered Investment $ $ $ 1 -58000 4000 54000 2 -8000 8000 54000 3 11000 43000 4 14000 29000 5 17000 12000 6 15000 0 7 13000 8 11000 9 10000 10 10000

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