Ans. 3 | Year | Cash inflows | Cummulative Cash Inflows | |||
1 | $44,000 | $44,000 | ||||
2 | $58,500 | $102,500 | ||||
3 | $87,600 | $190,100 | ||||
4 | $87,600 | $277,700 | ||||
5 | $87,600 | $365,300 | ||||
6 | $87,600 | $452,900 | ||||
7 | $87,600 | $540,500 | ||||
8 | $87,600 | $628,100 | ||||
9 | $87,600 | $715,700 | ||||
10 | $87,600 | $803,300 | ||||
Payback period = Completed years + (Investment - Cummulative cash flow of completed year) / Cash inflow of next year | ||||||
4 + ($325,000 - $277,700) / $87,600 | ||||||
4 + $47,300 / $87,600 | ||||||
4 + 0.54 | ||||||
4.54 years | ||||||
No. of completed years consist of the years in which the Sum of cash inflows are the nearest lower value than investment. | ||||||
Cummulative Cash Inflows = Cash inflow of current year + Sum of previous year cash inflows | ||||||
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