Question

Beyer Company is considering the purchase of an asset for $190,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 50,000 $ 31,000 $ 60,000 $ 140,000 $ 30,000 $ 311,000 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 place.)

Answer 1

3.35 years

Step-by-step explanation:

Computation of the payback period for this investment

Year Cash Inflow (outflow) Cumulative Net Cash Inflow (Outflow)

0 ($ 190,000) -

1 $ 50,000 $ 50,000

2 $ 31,000 $ 81,000

3 $ 60,000 $ 141,000

4 $ 140,000 $ 281,000

5 $ 30,000 $ 311,000

Payback period= 3.35 Years

OR

Payback period = 3 years + ($190,000 - $141,000)/$140,000

Payback period= 3 years + ($49,000/$140,000)

Payback period= 3 years + 0.35

Payback period= 3.35 years

Therefore the payback period for this investment is 3.35 years