Question

partial credit, E12-19A (similar to) Turner Hardware is adding a new product line that will require an investment of $ 1 comma 530 comma 000. Managers estimate that this investment will have a​ 10-year life and generate net cash inflows of $ 305 comma 000 the first​ year, $ 270 comma 000 the second​ year, and $ 240 comma 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 / ▼ ) = Payback

Answer 1

Answer:

5.98  years

Explanation:

The computation of the payback period is shown below:

In year 0 = -$1,530,000

In year 1 = $305,000

In year 2 = $270,000

In year 3 = $240,000

In year 4 = $240,000

In year 5 = $240,000

In year 6 = $240,000

In year 7 = $240,000

In year 8 = $240,000

In year 9 = $240,000

In year 10 = $240,000

If we added the first 5 year cash inflows than it would be $1,295,000

Now we have to subtract the $1,295,000 from the $1,530,000 , so the amount would be $235,000 as if we sum the six year cash inflow so the total amount is exceeded to the initial investment. So, we subtract it

And, the next year cash inflow is $240,000

So, the payback period equal to

= 5 years + $235,000 ÷ $240,000

= 5.98  years