Question

Blue Hamster Manufacturing Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta's expected future cash flows. To answer this question, Blue Hamster's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year O Year 1 $2,400,000 Year 2 $5,100,000 Year 3 $2,100,000 -$6,000,000 Expected cash flow Cumulative cash flow Conventional payback period: years

Answer 1

Ans 1.71 years

Year	Cash Flow	Cumulative Cash Flow
0	-6000000	-6000000
1	2400000	-3600000
2	5100000	1500000
3	2100000	3600000
TOTAL	3600000
Payback Period =	1 YEAR + 3600000/5100000
	1.71 years