Question

How Would I solve this

WE12-19A (similar to) Question Help O Walken Hardware is adding a new product line that will require an investment of $1,520,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $300,000 the first year. $270.000 the second year, and $260,000 each year thereafter for eight years. The investment has no residual value. Compute the payback period. First enter the formula, then calculate the payback period. (Round your answer to two decimal places.) Full years Amount to complete recovery in next year / Projected cash inflow in next year + +i = )= Payback years

Answer 1

Year	Annual Cash flows	Cummulative Cash flows
1	$       3,00,000	$      3,00,000
2	$       2,70,000	$      5,70,000
3	$       2,60,000	$      8,30,000
4	$       2,60,000	$    10,90,000
5	$       2,60,000	$    13,50,000
6	$       2,60,000	$    16,10,000
7	$       2,60,000	$    18,70,000
8	$       2,60,000	$    21,30,000
9	$       2,60,000	$    23,90,000
10	$       2,60,000	$    26,50,000

Investment is $1520000
Since Cummulative cash flows after 5 years is lower than $1520000 and after 6 years is $1610000, payback period is between 5 and 6 years

Payback period = 5 years + ($170000* / $260000)
= 5.65 years

* $1520000 - $1350000 = $170000