Christopher Electronics brought new machinery for $5,120,000 million. This is expected to result in additional cash...
Christopher Electronics brought new machinery for $5,120,000 million. This is expected to result in additional cash flows of $1,205,000 million over the next 7 years. What is the payback period for this project? Their acceptance period is five years. Round to two decimal places.
Homework Answers
| Machine | ||
| Year | Cash flow stream | Cumulative cash flow |
| 0 | -5120000 | -5120000 |
| 1 | 1205000 | -3915000 |
| 2 | 1205000 | -2710000 |
| 3 | 1205000 | -1505000 |
| 4 | 1205000 | -300000 |
| 5 | 1205000 | 905000 |
| 6 | 1205000 | 2110000 |
| 7 | 1205000 | 3315000 |
| Payback period is the time by which undiscounted cashflow cover the intial investment outlay | ||
| this is happening between year 4 and 5 | ||
| therefore by interpolation payback period = 4 + (0-(-300000))/(905000-(-300000)) | ||
| 4.25 Years | ||
| Accept project as payback period is less than 5 years | ||
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