Beyer Company is considering the purchase of an asset for
$270,000. It is expected to produce...
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Accounting
Beyer Company is considering the purchase of an asset for$270,000. It is expected to produce the following net cash flows.The cash flows occur evenly within each year.
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Net cash flows
$
66,000
$
39,000
$
67,000
$
200,000
$
22,000
$
394,000
Compute the payback period for this investment. (Cumulativenet cash outflows must be entered with a minus sign. Round yourPayback Period answer to 2 decimal place.)
Year
Cash inflow (Outflow)
Cumulative Net Cash Inflow (Outflow)
0
1
2
3
4
5
Payback period =
years
Answer & Explanation
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4.0 Ratings (453 Votes)
answer
Payback period is 3.49 years (see solutions)
year
cash inflow (outflow)
cumulative net cash inflow (outflow)
0
-270000
-270000
1
66000
-204000
2
39000
-165000
3
67000
-98000
4
200000
102000
5
22000
124000
solution
year
annual net cash flow
cumulative net cash flow
1
66000
66000
2
39000
105000
3
67000
172000
4
200000
372000
5
22000
394000
cost of investment
270000
part of year = amount paid back in 4th year/net cash flow in 4th
year
less: paid back in 1-3 year
-172000
= 98000 / 200000
partly in 4th year
98000
= 0.49
pay back period = 3 + 0.49 = 3.49 years
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