Question

The Zingstad Corporation is considering an investment with the following data (Ignore income taxes.): Year 3 Year 4 Year 5 Investment Cash inflow Year 1 $ 32,000 $ 8,000 Year 2 $12,000 $ 8,000 $20,000 $16,000 $ 16,000 Cash inflows occur evenly throughout the year. The payback period for this investment is: Multiple Choice o 30 years 3.0 years • 3.5 years O 4.0 years o 4.5 years

Answer 1

Year	Cash outflow	Cash inflow	Cumulative Cash flow
1	$           (32,000)	$             8,000	$                              (24,000)
2	$           (12,000)	$             8,000	$                              (28,000)
3		$          20,000	$                                (8,000)
4		$          16,000	$                                  8,000
5		$          16,000	$                                  8,000

Payback period = 3+ ($8,000/$16,000)

Payback period = 3.50

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