Question

determine the payback period method

lysis ment is phone tower, they use cu value method, the payback period methuu, By using these methods, they can ensure a wise allocation UI TEJE time minimize the risks involved in the investment decision. LO3 Suppose that Neighborhood Communications is considering building a new cell phone tower and has gathered the following information: Purchase price $600,000 Residual value $100,000 Desired payback period 3 years 15% Minimum rate of return The cash flow estimates are as follows: Net Cash Projected Cash Year Inflows Cash Outflows Inflows Net Income $ 500,000 $260,000 $240,000 $115,000 450,000 240,000 210,000 85,000 400,000 220,000 180,000 55,000 - 4 350,000 200,000 150,000 25,000 Totals $1,700,000 $920,000 $780,000 $280,000

Answer 1

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Answer is highlighted in yellow: Can be rounded per question, e.g. 2 decimal or 1 decimal: Solution: Payback Period: Cummula tive net cash inflow 240000 Net Cash Year Investment inflow 240000 1 600000 450000 2 210000 180000 3 630000 780000 4 150000 (600000-450000)/180000 Proportion: 0.833333 Payback period 2.83 years (2+0.83) or 2.8 years