Question

Beyer Company is considering the purchase of an asset for $400,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year Year 1 $80,000 Year 3 $70,e0e Year 2 Year 4 Year 5 Total $445,000 $200,000 Net cash flows $80,000 $15,e00 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) Cumulative Net Cash Inflow (Outflow) Cash inflow Year (Outflow) S (400,000) 1 2 4 5 Payback period

Answer 1

Answer to Question 1: Year Cash Inflow (Outflow) Cuumulative Net Cash Inflow (Outflow) 2 $ $ $ $ $ $ 400,000 $ 80,000$ 80,000 $ 70,000 $ 200,000 $ 15,000 $ 400,000 320,000 240,000 170,000 30,000 45,000 4 5 Payback Period = 3 + $170,000 / $200,000 Payback Period = 3.85 years Answer to Question 2: Year Net Cash Flows 1 $ $ $ $ $ Totals $ Amount Invested Net Present Value 86,000 41,000 98,000 173,000 49,000 447,000 Present Value Present Value of Net Cash of $1 at 12% Flows 0.8929 $ 76,789 0.7972 $ 32,685 0.7118 $ 69,756 0.6355 $ 109,942 0.5674$ 27,803 $ 316,975 $ -190,000 $ 126,975 NPV of the investment is positive. So, Beyer should accept this investment.