Question

Beyer Company is considering the purchase of an asset for $370.000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 $86,000 Year 2 $49,000 Year 3 $70,000 Year 4 $300,000 Year 5 $12,000 Total $517,000 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 place.) Year Cash inflow (Outflow) Cumulative Net Cash Inflow (Outflow) O $ (370,000) Payback period =

Answer 1

Year	Net Cash Flows	Present Value of 1 at 12%	Present value of net cash flows
1	64000	0.893	57152
2	46000	0.797	36662
3	96000	0.712	68352
4	138000	0.636	87768
5	51000	0.567	28917
Net Present Value of cash inflows			278851
Amount Invested			240,000
Net Present Value			38,851
b.Yes Accept the Investment

2)

Beyer Company
Calculation of Payback Period
Year	Cash Flow	Cumulative cash flow
0	-370000	-370000
1	86000	-284000
2	49000	-235000
3	70000	-165000
4	300000	135000
5	12000	147000

Payback period =3 +($165000/$300000)

                          =3 +.55 =3.55 years

3)

a)	Depreciation		=	(Cost-salvage Value)/Useful Life
			=	(240000-0)/5
			=	$ 48,000.00
b)
Year	Net Income		Depreciation		Net Cash flow		Cumulative cash flows
0					$   -2,40,000.00		$ -2,40,000.00
1	$     15,600.00		$ 48,000.00		$         63,600.00		$ -1,76,400.00
2	$     38,600.00		$ 48,000.00		$         88,600.00		$     -87,800.00
3	$ 1,06,000.00		$ 48,000.00		$     1,54,000.00		$       66,200.00
4	$     58,300.00		$ 48,000.00		$     1,06,300.00		$   1,72,500.00
5	$ 1,54,400.00		$ 48,000.00		$     2,02,400.00		$   3,74,900.00
	Payback period		=	2+(87800/154000)
			=	2.57	Years
	Payback period is the time upto which initial cash outlay is recovered back.