Question

KB. Casa Loma Industries is considering a $300,000 capital investment with the following projected cash flows: Year Year 4 1 Cash Flows $60,000 $140,000 $90,000 Cash Flows $50,000 $40,000 $30,000 2 5 6 3 The payback period is rounded to 6 years Some other answer 4 years 3 years 3 months 3 years 2 months

Answer 1

Correct answer--------------3 years 3 months

please select 3years 2 month if above answer do not

Working

Year	Net Cash Flow	Cummulative Cash Flow
0	$   (300,000.00)	$   (300,000.00)
1	$      60,000.00	$   (240,000.00)
2	$    140,000.00	$   (100,000.00)
3	$      90,000.00	$     (10,000.00)
4	$      50,000.00	$      40,000.00

.

Payback Period =	A+	B
		C

.

In the above formula,

A is the last period with a negative cumulative cash flow;

B is the absolute value of cumulative cash flow at the end of the period A;

C is the total cash flow during the period after A

.

Payback Period =	3+	$         10,000.00	0.20
		$         50,000.00
Payback Period =	3.20	Years	Or 3 years 3 months