The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows:
| Year | Investment | Cash Inflow | ||
| 1 | $ | 15,000 | $ | 1,000 |
| 2 | $ | 8,000 | $ | 2,000 |
| 3 | $ | 2,500 | ||
| 4 | $ | 4,000 | ||
| 5 | $ | 5,000 | ||
| 6 | $ | 6,000 | ||
| 7 | $ | 5,000 | ||
| 8 | $ | 4,000 | ||
| 9 | $ | 3,000 | ||
| 10 | $ | 2,000 | ||
Required:
1. Determine the payback period of the investment.
2. Would the payback period be affected if the cash inflow in the last year were several times as large?
| 1) | |||||
| year | Outflow | Inflow | Net Cash flow | Accumulated cash flow | |
| 1 | -15000 | 1000 | -14000 | -14000 | |
| 2 | -8000 | 2000 | -6000 | -20000 | |
| 3 | 2500 | 2500 | -17500 | ||
| 4 | 4000 | 4000 | -13500 | ||
| 5 | 5000 | 5000 | -8500 | ||
| 6 | 6000 | 6000 | -2500 | ||
| 7 | 5000 | 5000 | 2500 | ||
| 8 | 4000 | 4000 | 6500 | ||
| 9 | 3000 | 3000 | 9500 | ||
| 10 | 2000 | 2000 | 11500 | ||
| Payback period = 6 years + 2500/5000 | |||||
| =6.5 years | |||||
| 2) | Not be affected. | ||||
| Because payback period is erlier than last year. | |||||
| NOTE: ASK YOUR QUERIES.PLEASE DO UPVOTE | |||||
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