When the annual cash flows are unequal, the payback period is computed by adding the annual cash flows until such time as the original investment is recovered. If a fraction of a year is needed, it is assumed that cash flows occur evenly within each year.
The steps for determining the payback period with uneven cash flows is as follows:
+ Explanation of Time Needed for Payback with uneven cash flows Note: For each year in which the unrecovered investment meets or exceeds the annual cash flow, this is 1. For years in which the annual cash flow exceeds the unrecovered investment, this is the unrecovered investment divided by the annual cash flow for that year.

Compute the time needed for payback for the following example assuming the investment required an upfront capital outlay of $100,000 and the uneven annual cash flows for each year are provided in the table. If an amount is zero, enter "0". For the time needed for payback, enter your answer to one decimal place, if less than one year (i.e. 0.2, 0.5, etc.).
Year  Unrecovered Investment (Beginning of year) 
Annual Cash Flow  Time Needed for Payback  
1  $100,000  $10,000  1 year  
2  20,000  
3  30,000  
4  40,000  
5  50,000 
Total time needed for payback (to the nearest tenth of a year) = years
The average rate of return is another method that does not use present value and is commonly used in making capital investment decisions. Unlike the cash payback method, the average rate of return focuses on income rather than cash flow.
Assume that the investment involves an initial outlay of $100,000 with a fiveyear useful life and no salvage value under straightline depreciation. The revenues are as follows: Year 1  $10,000, Year 2  $20,000, Year 3  $30,000, Year 4  $40,000 and Year 5  $50,000.
Use the minus sign to indicate a net loss. If an amount is zero, enter "0".
Year  Revenues  Expenses  Net Income  
Year 1 Net Income (loss)  =  $    $  =  $ 
Year 2 Net Income (loss)  =    =  
Year 3 Net Income (loss)  =    =  
Year 4 Net Income (loss)  =    =  
Year 5 Net Income (loss)  =    = 
Total Net Income (five years) = $
Average Net Income = 

= $ 
Average Rate of Return = 

= % 
Cash flow is calaculated as follows
Uneven Cash Flow = Initial Investment/Perodic cash flow
However is the cases of uneven cash follows
Payback can be calculated using the formula = Years before full recovery + Uncover cost start of the year dived by cash flow during the year
So Initial ivestment = 1,00,000
Years of cash Flow=10000+20000+ 30000+40000
Pay back period is =4years
Average Net Inome= Total cash flow/no of years =150000/5= 3000=
Average Rate of Return +Total Net Profit /No of years /inital Cost *100
=150000/5/100000*100=30
ARR=30%
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