Creative Solutions, Inc., has just invested $5,768,663 on equipment. The firm us

Question

Creative Solutions, Inc., has just invested $5,768,663 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover its costs. The company anticipates cash flows of $703,476, $909,639, $1,144,103, $1,249,791, $2,949,878, and $1,851,735 over the next six years. (Round answer to 2 decimal places, e.g. 15.25.) What is the payback period of this investment? Payback period is years. Should Creative Solutions, Inc. go ahead with this project? The firm should the project.

Explanation / Answer

Payback = last negative cumulative CF year number+ (last cumulative cumulative year CF/ next year total cash flows)

=4+(1761654/2949878)=4.60 years, do not accept as it is > required 4 years

Year CF Cumulative CF 0 -5768663 -5768663 1 703476 -5065187 2 909639 -4155548 3 1144103 -3011445 4 1249791 -1761654 5 2949878 1188224 6 1851735 3039959

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