Beyer Company is considering the purchase of an asset for $180,000. It is expect

Question

Beyer Company is considering the purchase of an asset for $180,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Net cash nows $60,000 $40,000 $70,000 125,000 $35,000 $330,000 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 places.) Year Cash Inflow Cumulative Net cash Inflow Outflow) (Outflow) (180 000) Payback period Type here to search

Explanation / Answer

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=3+(10,000/125000)

=3.08 years

Year Cash flow Cumulative Cash flow 0 (180,000) (180,000) 1 60,000 (120,000) 2 40000 (80,000) 3 70,000 (10,000) 4 125000 115000 5 35000 150,000

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