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 $300,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year.

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 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 72,000 $ 42,000 $ 71,000 $ 230,000 $ 19,000 $ 434,000

Explanation / Answer

3 years + (115,000/230,000)

3.5 Years

Year Cash flow Cumulative Cash Flow $ (300,000) $                        (300,000) 1 $      72,000 $                        (228,000) 2 $      42,000 $                        (186,000) 3 $      71,000 $                        (115,000) 4 $   230,000 $                           115,000 5 $      19,000 $                           134,000

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