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Sheridan Specialties just purchased inventory-management computer software at a cost of $2,015,950. Cost savings from the...

Sheridan Specialties just purchased inventory-management computer software at a cost of $2,015,950. Cost savings from the investment over the next six years will produce the following cash flow stream: $201,340, $354,240, $336,600, $552,250, $793,320, and $598,740. What is the payback period on this investment? (Round answer to 2 decimal places,e.g. 15.25.)

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Answer #1
Year Cash flows Cumulative Cash flows
0 (2,015,950) (2,015,950)
1 201,340 (1,814,610)
2 354,240 (1,460,370)
3 336,600 (1,123,770)
4 552,250 (571520)
5 793,320 221800
6 598,740 820,540

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=4+(571520/793,320)

=4.72 years(Approx).

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