Question

The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: YearCash OutflowCash Inflow 1$1,900,000 $95,000 2550,000 205,000 3360,000 4485,000 5510,000 6595,000 7595,000 8305,000 9255,000 10250,000 A. What is the payback period of this uneven cash flow

Answer 1

Answer:

6.34 years

Explanation:

Year   Cash outflow  Cash inflow  Net cash flow  Cumulative cash flow

1          ($1,900,000)     $95,000       ($1,805,000)          ($1,805,000)

2         ($550,000)       $205,000     ($345,000)             ($2,150,000)

3                                   $360,000     $360,000               ($1,790,000)

4                                   $485,000     $485,000                ($1,305,000)

5                                   $510,000      $510,000                ($795,000)

6                                   $595,000     $595,000               ($200,000)

7                                   $595,000     $595,000                $395,000

8                                   $305,000     $305,000                $700,000

9                                   $255,000     $255,000                $955,000

10                                  $250,000     $250,000                $1,205,000

Payback period = 6 + 200,000/ 595,000

Payback period = 6 + 0.3361345

Payback period = 6.336134

Payback period = 6.34 years

So, the payback period of this uneven cash flow is 6.34 years.