Question

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Joe'sJoe's

Hardware is adding a new product line that will require an investment of

$ 1 comma 460 comma 000$1,460,000.

Managers estimate that this investment will have a​ 10-year life and generate net cash inflows of

$ 335 comma 000$335,000

the first​ year,

$ 300 comma 000$300,000

the second​ year, and

$ 255 comma 000$255,000

each year thereafter for eight years. The investment has no residual value. Compute the payback period.

Answer 1

Year	Cash Flow	Cumulative cash flows
0	-1460000	-1460000
1	335000	-1125000
2	300000	-825000
3	255000	-570000
4	255000	-315000
5	255000	-60000
6	255000	195000
7	255000	450000
8	255000	705000
	By Interpolation the Payback period should be between 5 and 6 years
	and the Payback period shall be 5.24 Years