Question

The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment $59,000 $ 9,000 Cash Inflow $ 5,000 $10,000 $20,000 $21,000 $24,000 $22,000 $20,000 $18,000 $17,000 $17,000 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the payback period of the investment. (Round your answer to 1 decimal place.) Payback period years Required 1 Required 2 >

Answer 1

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Answer is highlighted in yellow: Solution: 1) Payback Period: Annual Cummula net tive cash Year Investment income inflow 59000 5000 5000 9000 10000 15000 20000 35000 21000 56000 24000 80000 22000 102000 20000 122000 18000 140000 17000 157000 17000 174000 valul Proportion: (68000-56000)/24000 = 0.5 1) Payback period (4+0.5) = 4.5 years 2) No Because, payback will happen on year 4.5. This method doesn't focus on cash inflow beyond the payback period.