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Hardware is adding a new product line that will require an investment of
$1,500,000.
Managers estimate that this investment will have a 10-year life and generate net cash inflows of
$310,000
the first year,
$265,000
the second year, and
$245,000
each year thereafter for eight years. The investment has no residual value. Compute the payback period.
First enter the formula, then calculate the payback period. (Round your answer to two decimal places.)
Full years |
+ ( |
Amount to complete recovery in next year |
/ |
Projected cash inflow in next year |
) = |
Payback |
+ ( |
/ |
) = |
years |
Cumulative cash flows :
Year | Cash flow | Cumulative cash flows |
0 | -1500000 | -1500000 |
1 | 310000 | -1190000 |
2 | 265000 | -925000 |
3 | 245000 | -680000 |
4 | 245000 | -435000 |
5 | 245000 | -190000 |
6 | 245000 | 55000 |
7 | 245000 | 300000 |
8 | 245000 | 545000 |
9 | 245000 | 790000 |
10 | 245000 | 1035000 |
Payback period
Full year | + | Amount to complete recovery in next year | / | Projected cash inflow in next year | = | Payback period |
5 Years | + | 190000 | / | 245000 | = | 5.78 Years |
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