Beyer Company is considering the purchase of an asset for $250,000. It is expect

Question

Beyer Company is considering the purchase of an asset for $250,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Year 1 $50,000 $36,000 $60,000 $130,000 $24,000 $300,000 Year 2 Yescar 33 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.) Year Cash inflow Cumulative Net (outflow) Cash Inflow (outflow) 0 (250,000) 2 4 Payback period =

Explanation / Answer

Year Cashflow Cumulative cashflow 0 -250000 -250000 1 50000 -200000 2 36000 -164000 3 60000 -104000 4 130000 26000 5 24000 50000 Since the cashflows are turning positive from Year 4, payback period is between Year 3 and year 4 Payback period = 3+ 104000/130000 = 3.8 years

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