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The management of Daytona Industries, an interior design company, is considering a R250 000 investment in...

The management of Daytona Industries, an interior design company, is considering a R250 000 investment in a high-quality booking system with the following cash flows:

Year Cash Inflow

1 R 30 000

2 R 60 000

3 R120 000

4 R130 000

5 R160 000

If the company wants to recover its initial investment in year 3, is the investment worthwhile?

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Answer #1
Year Cash Flow Cumulative Cashflow
1 30000 30000
2 60000 90000
3 120000 210000
4 130000 340000
5 160000 500000
Initial investment is R250,000
payback period is between year 3 & year4
payback back period =3years+(250000-210000)/130000*365
payback back period =3years and 112 days
the company wants to recover the investment in year3
but actual recovery period of initial investment is 3 years 112 days, which is in year4
so, the investment is not worth while
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