Exercise 24-1 Payback period computation; uneven cash flows LO P1 Beyer Company

Question

Exercise 24-1 Payback period computation; uneven cash flows LO P1 Beyer Company is considering the purchase of an asset for $210,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year Year 1 Year 2 Year 3 $64,000 $33,000 $62,000 $150,000 $28,000$337,000 Year 4Year 5 Total Net cash flows 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 places.) Cash inflow Cumulative (outflow) Year Cash Inflow (outflow) $(210,000) Payback period-

Explanation / Answer

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=3+(51000/150000)=3.34 years

Year Cash inflow(outflow) Cumulative net cash inflow(outflow) 0 (210,000) (210,000) 1 64000 (146000) 2 33000 (113000) 3 62000 (51000) 4 150,000 99000 5 28000 127000 Payback period= 3.34 years.

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