Beyer Company is considering the purchase of an asset for $270,000. It is expected to produce...

Beyer Company is considering the purchase of an asset for $270,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year.

	Year 1			Year 2			Year 3			Year 4			Year 5			Total
Net cash flows		$	66,000		$	39,000		$	67,000		$	200,000		$	22,000		$	394,000

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.)

Year	Cash inflow (Outflow)	Cumulative Net Cash Inflow (Outflow)
0
1
2
3
4
5


Payback period =			years

Expert Solution

answer

	Payback period is 3.49 years (see solutions)

	year	cash inflow (outflow)	cumulative net cash inflow (outflow)
	0	-270000	-270000
	1	66000	-204000
	2	39000	-165000
	3	67000	-98000
	4	200000	102000
	5	22000	124000


solution
	year	annual net cash flow	cumulative net cash flow
	1	66000	66000
	2	39000	105000
	3	67000	172000
	4	200000	372000
	5	22000	394000


		cost of investment	270000	part of year = amount paid back in 4th year/net cash flow in 4th year
		less: paid back in 1-3 year	-172000	= 98000 / 200000
		partly in 4th year	98000	= 0.49

				pay back period = 3 + 0.49 = 3.49 years

ekkarill92 answered 2 months ago

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