iPad 2:47 PM c * 99% ezto.mheducation.com Question 3 (of 5) Save & ExitSubmit 3.
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iPad 2:47 PM c * 99% ezto.mheducation.com Question 3 (of 5) Save & ExitSubmit 3. 4.00 points The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows Year Investment Cash Inflow $4,000 $8,000 $11,000 $14,000 $17,000 $15,000 $13,000 $11,000 S10,000 $10,000 $58,000 $8,000 10 Required . Determine the payback period of the investment. (Round your answer to 1 decimal place.) 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Yes O No Hints References eBook & Resources Hint #1Explanation / Answer
Answer:-
Payback period =6 years+($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)-Since the investment is recovered prior the last year, the amount of cash inflows in years 7 to 10 as large have no effect on payback period
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 10000Related Questions
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