Question

Exercise 12-1 Payback Method (L012-1] The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment $42,000 $ 5,000 Hamono Cash Inflow $ 3,000 $ 6,000 $12,000 $14,000 $16,000 $15,000 $13,000 $11,000 $10,000 $10,000 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

1) Calculate payback period

Year	Cash inflow (outflow)	Cumulative cash flow
1	42000-3000 = -39000	-39000
2	6000-5000 = 1000	-38000
3	12000	-26000
4	14000	-12000
5	16000	4000
6	15000	19000
7	13000	32000
8	11000	43000
9	10000	53000
10	10000	63000

Payback period = 4 Years+12000/16000 = 4.75 years

2) No effect on payback period