3 The management of Weimar, Inc., a civil engineering design company, is conside
ID: 2452588 • Letter: 3
Question
3
The management of Weimar, Inc., a civil engineering design company, is considering an investment in a high-quality blueprint printer with the following cash flows:
Year
Investment
Cash Inflow
1
$60,000
$2,000
2
$4,000
$4,000
3
$8,000
4
$9,000
5
$12,000
6
$10,000
7
$8,000
8
$5,000
9
$4,000
10
$4,000
Required:
1.
Determine the payback period of the investment. (Round your answer to 1 decimal place.)
Payback period
years
2.
Would the payback period be affected if the cash inflow in the last year were several times larger? Circle or highlight your answer.
Yes
No
The management of Weimar, Inc., a civil engineering design company, is considering an investment in a high-quality blueprint printer with the following cash flows:
Explanation / Answer
An amount of $62000 is recollected at the end of 9 years as per the above table.
The payback period formula in such cases is
Full year recovery + (Cost unrecovered at the end of last year / Cash flow for last year)
= 9+ (2000/4000) = 9.5 years.
For the second question, the asnswer is YES.
If the cahs flow for the last year was more, the payback period should have come down. For example, if the cash flow for last year was $16000, the payback period by applying the above formula would be
9 + (2000/16000) = 9.125 years.
Year Investment Cash flow Cumulative Cash flow 1 -60000 2000 -58000 2 -4000 4000 -58000 3 8000 -50000 4 9000 -41000 5 12000 -29000 6 10000 -19000 7 8000 -11000 8 5000 -6000 9 4000 -2000 10 4000 -64000Related Questions
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