Question

The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: YearCash OutflowCash Inflow 1$1,900,000 $95,000 2550,000 205,000 3360,000 4485,000 5510,000 6595,000 7595,000 8305,000 9255,000 10250,000 A. What is the payback period of this uneven cash flow

Answer 1

6.34 years

Step-by-step explanation:

Year Cash outflow Cash inflow Net cash flow Cumulative cash flow

1 ($1,900,000) $95,000 ($1,805,000) ($1,805,000)

2 ($550,000) $205,000 ($345,000) ($2,150,000)

3 $360,000 $360,000 ($1,790,000)

4 $485,000 $485,000 ($1,305,000)

5 $510,000 $510,000 ($795,000)

6 $595,000 $595,000 ($200,000)

7 $595,000 $595,000 $395,000

8 $305,000 $305,000 $700,000

9 $255,000 $255,000 $955,000

10 $250,000 $250,000 $1,205,000

Payback period = 6 + 200,000/ 595,000

Payback period = 6 + 0.3361345

Payback period = 6.336134

Payback period = 6.34 years

So, the payback period of this uneven cash flow is 6.34 years.