Question

RobinsonRobinson Hardware is adding a new product line that will require an investment of $1,500,000. Managers...

RobinsonRobinson

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

Homework Answers

Answer #1

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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