Question

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

Answer 1

Answer:

The project will pya itself at the seventh year.

The last year cash inflwo will not impact the payback period as the project already achieve payback before that year.

Explanation:

The payback is the moment at which the project net clashflow is zero

that is the inflow matches the initial outflow:

$\left[\begin{array}{ccccc}Year&Inflow&Outflow&Net&Acc\\1&1,000&15,000&-14,000&-14,000\\2&2,000&8,000&-6,000&-20,000\\3&2,500&&2,500&-17,500\\4&4,000&&4,000&-13,500\\5&5,000&&5,000&-8,500\\6&6,000&&6,000&-2,500\\7&5,000&&5,000&2,500\\8&4,000&&4,000&6,500\\9&3,000&&3,000&9,500\\10&2,000&&2,000&11,500\\\end{array}\right]$