Beyer Company is considering the purchase of an asset for $240,000. It is expect

Question

Beyer Company is considering the purchase of an asset for $240,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Year 4 Year 1 $60,000 $36,000 $60,000 $150,000 $25,000 $331,000 Year 2 Year 3 Year 5 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 places.) Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) Year 0 (240,000) 2 4 Payback period =

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+(84000/150,000)

=3.56 years

Year Cash flows Cumulative Cash flows 0 (240,000) (240,000) 1 60,000 (180,000) 2 36000 (144000) 3 60000 (84000) 4 150,000 66000 5 25000 91000

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