Question

The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow 1 $61,000 $3,000 2 $5,000 $6,000 3 $12,000 4 $13,000 5 $16,000 6 $10,000 7 $8,000 8 $10,000 9 $9,000 10 $9,000 Required: 1. Determine the payback period of the investment. (Round your answer to 1 decimal place.) 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Yes No

Answer 1

Answer:

6.75 years

No

Explanation:

The payback period calculates how long it takes to recover the amount invested in a project.

Explanations on how the payback period is calculated can be found in the attached image.

If the cash flow of the last year was increased , it won't affect the payback period because the amount invested has already been recovered between the 6th and 7th year. Therefore, the last cash flow won't be used in calculating the payback period.

I hope my answer helps you