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. (Round your answer to 1 decimal place.)

Answer 1

Answer:

The payback period of the investment is 6.5 years

Explanation:

1. In order to calculate the payback period of the investment we would have to make the following calculation:

payback period of the investment=Year before full recovery+(Unrecovered cost at the  start/cash flow during the year )

payback period of the investment=6+  ($23,000−$20,500) /$5,000

payback period of the investment=6.5 Years

The payback period of the investment is 6.5 years

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