p://e-te.mheducation.com/hm.tp0.7453398991 731006-15 1 1 745684040 d Home l Cheg

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p://e-te.mheducation.com/hm.tp0.7453398991 731006-15 1 1 745684040 d Home l Chegg.com ax Login PM/Synchrony Consumer ... Home FAFSA on the we... Dashboard Khan Academy M McGraw-Hill Connect 0.00 points The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows Investment Cash Inflow $1,000 $2,000 $2,500 $4,000 $5,000 $6,000 $5,000 $4,000 $3,000 $2.000 15,000 8,000 9 10 Required 1 Determine the payback period of the investment (Round your answer to 1 decimal place.) k period years 2 Would the payback period be affected if the cash inflow in the last year were several times as large? Yes No

Explanation / Answer

the following table shows the calculation of payback period:

note: total investment to be recovered = $23,000

Since the initial investment of $23,000 is recovered in year six , it can be said that the payback period lies between, year 5 and year 6.

The precise payback period = year 5 + (initial investment -cumulative cash flow of year 5) / (cash flow of year 6)

=>year 5 + ($23,000 - $19,500) / ($6,000)

=> year 5 + ($3500)/($6000)

=>5.583333 years

=>5.6 years.......(rounded to one decimal place).

2.NO.

Since the payback period is 5.6 years, there will be no impact on the payback period by the cashflows from 7 th year onwards.

Year Cash flow Cumulative cash flow 1 $1,000 $1,000 2 $2,000 $1000 + 2000 =>$3,000 3 $2,500 $3,000 + 2,500=>$5,500 4 $4,000 $5,500 +$4,000 =>$14,500 5 $5,000 $14,500 +$5,000=>$19,500 6 $6,000 $19,500 +6,000 =>$25,500

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