Exercise 11-1 Payback period computation; uneven cash flows LO P1 Beyer Company
ID: 2592696 • Letter: E
Question
Exercise 11-1 Payback period computation; uneven cash flows LO P1 Beyer Company is considering the purchase of an asset for $290,000. It is expected to produce the following net cash flows. T flows occur evenly within each year. Year 1 Year 2 $70,000 $40,000 $70,000 $200,000 $20,000 $400,000 Year 4 Total 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 Cumula Outflow) Cash Inflow Outfiow) o (290,000) Payback period .Explanation / Answer
Year
Cash Inflow / (Outflow)
Cumulative Cash Inflow / (Outflow)
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
Payback Period = 3.55 years
Explanation
Annual Net Cash Flows
Cumulative Cash Flows
1
70,000
70,000
2
40,000
110,000
3
70,000
180,000
4
200,000
380,000
5
20,000
400,000
Part of the year = 110,000 / 200,000 = 0.55
Payback period = 3 + 0.55 = 3.55 years
Year
Cash Inflow / (Outflow)
Cumulative Cash Inflow / (Outflow)
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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