4. Beyer Company is considering the purchase of an asset for $380,000. It is exp

Question

4. Beyer Company is considering the purchase of an asset for $380,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Year1 $90,000 $50,000 $70,000 $250,000 $11,000 $471,000 Year 2Year 3 Year 4 Year 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.) reriod answer to 2 decimal p Cumulative Net Cash Inflow (outflow) Cash inflow Year (outflow 0 $ (380,000) 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+(170000/250,000)=3.68 years.

Year Cash flows Cumulative cash flows 0 (380,000) (380,000) 1 90000 (290,000) 2 50000 (240,000) 3 70000 (170,000) 4 250,000 80000 5 11000 91000

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